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Construction News: VAT Reverse Charge

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July 8, 2019

As a specialist provider of business solutions to construction firms, we wanted to make you aware of the latest development in the industry, which could seriously affect your business.

From 1st October 2019, there will be major changes relating to the payment of VAT in respect of building work. The new reverse charge system means that the suppliers of goods or services will no longer be involved in the payment of VAT to HMRC.

This change is designed to help tackle the issue of VAT fraud, particularly in instances where the contractor pays the sub-contractor the chargeable price plus VAT, but the subcontractor fails to account for the VAT to HMRC.

It means that the customer of the construction services will be required to account for the VAT, rather than the supplier, by showing the VAT as output tax on their tax return and reclaim it via the reverse charge mechanism.

These changes will affect construction firms that are currently covered by the CIS (Construction Industry Scheme). It only affects B2B provision of services between VAT registered businesses, where the recipient then makes an onward supply of the same construction services. 

HMRC have calculated an approximate loss of £100 million due to VAT fraud in the construction industry. Therefore, it is likely that HMRC will look to target construction firms who get it wrong.

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