With the impending change to VAT looming in the very near future, it is vitally important for those in the Construction industry to understand the new legislation surrounding the VAT Reverse charge. In an attempt to reduce fraud in the construction industry, HMRC will bring into effect a reverse charge in October 2019. Specifically targeting missing trader fraud, the change has been made, in part, in response to many fraudsters establishing construction companies, draining off VAT as it moves up the supply chain and ultimately closing the business after 6-9 months and vanishing from HMRC’s radar.
What will change?
Certain customers will become responsible to HMRC for VAT for purchases rather than the supplier. The new legislation will mean that VAT cash no longer passes between businesses. For example, for every new transaction made, the VAT must be registered and listed on the invoice. Suppliers will no longer charge and account for the VAT but rather the customer.
However, to ease with the transition, there will be a 3-month grace period allowing contractors to pay invoices and prior to October 2019 using the current system.
How does this affect you?
HMRC have stated that they expect the change to affect up to 150,000 business in the construction and building sector. Any company registered with the Construction Industry Scheme (CIS) or any company invoicing a customer that is not CIS registered must charge VAT as usual. The change will mainly affect those supplying services to large contractors or recruitment agency.
What should you do?
All businesses in the industry should complete a review of their supply chains and identify areas or suppliers which will be subject to the change and ensure their accounts system is updated in-line with the change.
Written by Sam McDonald