Proposed new Construction Industry VAT rules for October 2019
HMRC are in the process of issuing new legislation in respect of VAT in the construction industry. The rules are being introduce to attempt to stop VAT fraud in the construction sector where HMRC are currently experiencing a significant tax loss. It will remove the opportunity for fraudsters to charge VAT and then go missing before paying it over to the Exchequer
HMRC has published draft legislation to introduce the Reverse Charge for Construction Services. Under the reverse charge the supplier does not invoice for VAT, the main contractor would account for the VAT on the services of any sub-contractor. The main contractor would then account for VAT on the net value of the supplier’s invoice and at the same time deducts that VAT - leaving a nil net tax position. This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors and in theory will stop VAT fraud.
The reverse charge will apply to a wide range of services in the building trade, including construction, alteration, repairs, demolition, installation of heat, light, water and power systems, drainage, painting and decorating, erection of scaffolding, civil engineering works and associated site clearance, excavation, and foundation works. The definitions have been lifted directly from the CIS legislation.
Professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape are not covered by the new rules. The draft legislation sets out other work to which the reverse charge does not apply.
I actually think that this is a good move from HMRC. The introduction of this legislation may mean that those in the construction industry producing monthly VAT returns can revert back to quarterly and I do believe it will prevent VAT fraud in this area.
However, we only have 12 months to implement the new procedures and as with any new piece of legislation, there will be detail to understand before we can make changes to accounting systems, invoicing and the VAT return procedure. If you work within the construction industry and would like to discuss how this may impact you, please do get in touch.