VAT changes within the construction sector coming late 2019

VAT fraud within the construction sector is costing the Exchequer around £100m a year with the cases of fraud generally occuring between the sub-contractor and the contractor. The sub-contractor provides the contractor with labour and charges VAT on the supply. The sub-contractor collects the VAT from the contractor, but then disappears without paying it over to HM Revenue and Customs.

To combat this problem, HM Revenue and Customs are proposing to set up a reverse charge mechanism which will come in to effect from 1 October 2019.
The new reverse charge will apply to the same range of construction services that are currently covered by the Construction Industry Scheme, specifically applying to business to business services between VAT registered businesses.

The reverse charges system will work as follows –

• Each business customer in any supply, or chain of supplies, of construction services will have to charge itself VAT on the cost of bought-in qualifying services and reclaim the same amount as input VAT (subject to normal rules and restrictions)
• The supplier will only invoice and be paid the net value of the supply
• The business customer will pay the net value to the supplier and pay the VAT element direct to HMRC
• The final customer (either non-business or a private individual) will be charged VAT by the supplier in the normal way

If you are looking for advice, support or further information, please contact our head of EQ Property & Construction, Steven Todd via steven.todd@eqaccountants.co.uk or call 01592 630055.