by Jason Gorringe, Tax-News.com, London
29 August 2019
The UK tax agency has announced that it has scheduled two new webinars to support the construction industry to come to terms with the new VAT reverse charge being introduced on building and construction services from October 1.
The webinars are listed on HMRC’s “Help and support for VAT webpage”, where businesses can register to attend.
The next webinar will be on September 18, 2019, beginning at 14:00 BST and lasting one hour. Another one-hour webinar is to be held on October 4, 2019.
Under the new regime, a VAT-registered business that supplies certain construction services to another VAT-registered business for onward sale will be not be required to account for VAT, but must issue an invoice stating that the service is subject to the domestic reverse charge. The recipient of the supply must account for the VAT due on the supply through its VAT return, instead of paying VAT to the supplier. The recipient may also recover that VAT amount as input tax, subject to the normal rules for claiming credit.
By switching the obligation to account for VAT from the seller to the recipient, the reverse charge is intended to ensure that another trader’s VAT is never passed up the supply chain, thereby eliminating the potential for the supplier to disappear without remitting the tax collected. The reverse charge has been found to be particularly effective in tackling missing trader fraud and other permutations of the scheme.
Unlike other types of reverse charge, the value of such reverse charge construction and building services will not count towards the VAT registration threshold.
Guidance released in July 2019 – VAT: domestic reverse charge for building and construction services – advised that taxpayers should prepare for the introduction of the measure by:
- Checking whether the reverse charge affects either their sales, purchases, or both;
- Making sure their accounting systems and software are updated to deal with the reverse charge;
- Considering whether the change will have an impact on their cashflow; and
- Making sure all their staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate.
Contractors will also need to review all their contracts with sub-contractors to decide whether the reverse charge will apply to the services they receive under their contracts. They must notify their suppliers if it will.
Sub-contractors will also need to contact customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.
The Chartered Institute of Taxation (CIOT) has called on the UK tax agency to delay the introduction of the new VAT reverse charge. The CIOT has set out its concerns about the construction industry’s readiness for the new VAT reverse charge in a letter to HMRC. It estimates that some 150,000 businesses in the construction and building sector will be affected by the change.
The CIOT hopes a six-month delay will lessen disputes between suppliers and customers as to whether or not VAT should be charged. The UK Government has yet to respond to the call.
A recent survey by the Federation of Master Builders indicated that 69 percent of construction SMEs surveyed have not heard of the new reverse charge. CIOT members reported a similar lack of awareness among SME construction businesses.