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Business Tax  •  Compliance  •  HMRC  •  Personal tax  •  Taxation

New reverse charge VAT scheme for construction industry

By RJP LLP on 22 February 2018

The construction industry has been targeted by the government on many occasions to reduce the incidences of tax fraud and missing payments. Their latest initiative focuses on VAT, this article explains the impact and what businesses involved with any construction related industries need to be aware of.

Following a consultation programme, a new ‘domestic reverse VAT charge’ will be introduced whereby the recipient rather than the supplier would account for the VAT due. This was confirmed in the Autumn Budget 2017 and the draft legislation will be unveiled in the spring of 2018.

The policy will operate in exactly the same way as the existing Construction Industry scheme, whereby a supplier’s direct taxes are paid directly to HMRC by the customer. In this case, what the reverse VAT charge means in practical terms, is that customers would pay the VAT element of their purchases directly to HMRC, rather than it being collected at a later date through the supplier. It will impact all businesses who make purchases within the construction industry, for example, by using or receiving supplies from sub contractors, and there will be no minimum size threshold for any transactions.

Any business that buys goods and services from the construction industry needs to be aware of the new policy and monitor developments closely. Currently, it is unclear exactly how businesses will be affected, they may be residential landlords for example and receiving services from the construction industry for repairs.

There will be no threshold applicable to the measure to exempt small supplies and no exemption for Flat Rate Scheme users (even though they will effectively have to leave the scheme to be able to recover VAT on the costs). Supplies to an end consumer (either a business or domestic customer) will not be included in the reverse charge scheme.

Overall, this will be a very important change for the construction industry and all businesses using their services. It is likely to result in additional requirements for specialist IT services and training to account for transactions properly and may also impact cash flow. The reverse charge will also be more complex to implement and track for businesses with multiple VAT rates applicable to their services.

If you are involved with the construction industry and would like specialist support, please contact Anne Eager by emailing partners@rjp.co.uk.

 

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The construction industry has been targeted by the government on many occasions to reduce the incidences of tax fraud and missing payments. Their latest initiative focuses on VAT, this article explains the impact and what businesses involved with any construction related industries need to be aware of.

Following a consultation programme, a new ‘domestic reverse VAT charge’ will be introduced whereby the recipient rather than the supplier would account for the VAT due. This was confirmed in the Autumn Budget 2017 and the draft legislation will be unveiled in the spring of 2018.

The policy will operate in exactly the same way as the existing Construction Industry scheme, whereby a supplier’s direct taxes are paid directly to HMRC by the customer. In this case, what the reverse VAT charge means in practical terms, is that customers would pay the VAT element of their purchases directly to HMRC, rather than it being collected at a later date through the supplier. It will impact all businesses who make purchases within the construction industry, for example, by using or receiving supplies from sub contractors, and there will be no minimum size threshold for any transactions.

Any business that buys goods and services from the construction industry needs to be aware of the new policy and monitor developments closely. Currently, it is unclear exactly how businesses will be affected, they may be residential landlords for example and receiving services from the construction industry for repairs.

There will be no threshold applicable to the measure to exempt small supplies and no exemption for Flat Rate Scheme users (even though they will effectively have to leave the scheme to be able to recover VAT on the costs). Supplies to an end consumer (either a business or domestic customer) will not be included in the reverse charge scheme.

Overall, this will be a very important change for the construction industry and all businesses using their services. It is likely to result in additional requirements for specialist IT services and training to account for transactions properly and may also impact cash flow. The reverse charge will also be more complex to implement and track for businesses with multiple VAT rates applicable to their services.

If you are involved with the construction industry and would like specialist support, please contact Anne Eager by emailing partners@rjp.co.uk.