From 1 October 2019 HMRC will introduce a VAT domestic reverse charge (Reverse Charge) on specified construction services.
The move is designed to counter the perceived fraud in the construction industry, where it is believed suppliers are receiving VAT from customers and ‘disappearing’ before they account for the VAT to HMRC.
Under the Reverse Charge regime the customer (i.e. the recipient of the supply) will be responsible for identifying whether a supply is subject to the Reverse Charge and, if it is, for accounting to HMRC for the VAT that is due, rather than paying it to the supplier.
The Reverse Charge will generally only apply on services that are supplied to customers that also operate in the construction sector so it will not apply where the customer is a consumer or an ‘end user’ of construction services, or the customer is not registered for VAT.
“Many smaller contractors and sub-contractors operating in the sector currently rely on the VAT collected from customers as working capital before they pay it across to HMRC,” said Harwood Hutton director Keir Singleton.
“Businesses will need to ensure their payment processes are updated and accounts teams are trained to implement the changes required by the new legislation.
“We can help businesses navigate the complexities of the Construction Industry Scheme, in particular implementation of the forthcoming domestic reverse charge rules, and keep them compliant with the tax authorities.”
For further discussion and advice on the impact on your business please contact us.
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