Industry braces for new VAT reverse charging rules
From October 1st, 2019, new rules on VAT will come into force that look set to have a significant impact on the cash flow of many businesses in the building services sector.
The new Vat Reverse Charging applies to the majority of construction-related services. Companies that are VAT registered and also registered with the Construction Industry Scheme (CIS) will no longer pay VAT to the majority of their sub-contractors. Instead, as purchasers they will be responsible for paying the VAT on an invoice directly to HMRC.
HMRC describes the scheme (which is already in place in other parts of Europe) as an anti-fraud measure ‘which removes the opportunity for fraudsters to charge VAT and then go missing before paying it over to the Exchequer.” HMRC believes that VAT fraud in construction sector labour supply chains presents a significant risk to the Exchequer. Organised criminal gangs fraudulently take over or create shell companies to steal VAT whilst operating alongside actual construction services. This is commonly referred to as ‘missing trader’ fraud.
Associations in the sector have been working hard to ensure that members are prepared for the change. The Building Engineering Services Association (BESA) has urged businesses to prepare, following reports from that 150,000 construction firms could be affected.
Head of Legal and Commercial Services at BESA, Debbie Petford said: “The majority of BESA members will be affected. So it’s absolutely vital that they understand these changes and are prepared”.
But getting to grips with new rules on taxation is not straightforward. There are a number of exemptions that companies need to be aware of. For example, BESA points out that VAT will only be paid to firms who supply only labour (employment businesses) and to the merchants and businesses that sell building materials only without any fix. Other exemptions to the new rules include professional work of architects, surveyors, building and engineering consultants. Installation of security systems and alarms are also exempt.
HMRC states that it realises implementing the new rules may cause difficulties. As a result it will take a ‘light touch’ in dealing with any errors made in the first six months of the scheme ‘as long as you are trying to comply with the legislation and have acted in good faith”.
Other parts of the construction sector have raised concerns about the impact of VAT Reverse Charging. The Federation of Master Builders (FMB) says that 69% of construction SMEs are not aware of the new scheme and that HMRC has not offered the assistance it promised to the sector. With the added impact of Brexit also affecting the sector, the FMB is asking for a 6 month delay in the introduction of Reverse VAT Charging.
For information on the changes to VAT, see the link below and make contact with your sector association for advice on dealing with the new rules.
Picture credit: Shutterstock/Tomislav Pinter
