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Building firms must prepare for VAT changes

Accountants and tax experts Newby Castleman are urging construction companies to prepare for changes to the VAT system for their industry due to come into effect to protect against fraud.

HMRC is implementing reverse charge measures, announced in the Autumn Budget of 2017, which will mean that for certain construction services the end customer will be responsible for the VAT in respect of those purchases, as opposed to the supplier.


The changes, which are set to come into effect on 1st October 2019, will affect contractors and sub-contractors in the construction trade, and could possibly have cash flow implications for these businesses.


Brent Goodwin, VAT Manager for Newby Castleman, explains:

“HMRC has recently been suffering losses to missing trader fraud within the construction industry. In some instances traders have submitted large VAT refund claims in respect of what have turned out to be bogus building projects before disappearing, meaning a substantial loss to the taxpayer. This new reverse charge system is intended to put a stop to this.”


The reverse charge will include goods, where those goods are supplied with specified services. The new legislation is currently under review, following a consultation period, and further changes are expected to be announced before it is put in place.


Brent continues:

“The reverse charge does not alter the liability of the supply and so will not affect a trader’s overall VAT position. A standard rated supply will remain standard rated, even where the trader is not required to charge output tax under the proposed legislation.


“This shifting of the responsibility for charging, collecting and remitting the VAT will in some circumstances make life easier for sub-contractors. They will not have to make the difficult decisions about whether to charge VAT or not if their services are being supplied to a contractor or developer - the responsibility for such decisions will shift to the main contractor or developer instead.


“It is of course right that the problem of missing trader fraud within the construction industry be tackled, but if traders have not picked up on the forthcoming changes they may be faced with unwanted penalties and interest as a consequence of failing to implement the reverse charge correctly. We would recommend that in the event of doubt, traders should seek guidance from their professional advisors to ensure there are no such unwelcome surprises.”

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