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Reverse charge VAT - what will 2019 hold?

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We’re running a short blog series on the legal changes and events that we expect to see in the construction industry over the course of 2019. In the final part of our series, we look at a change to VAT in October this year and what this means for construction businesses.

VAT Reverse Charge Mechanism -VAT change due in October

To combat VAT fraud in labour supply chains, known as ‘missing trader’ fraud, HM Revenue and Customs (HMRC) are instituting a VAT ‘reverse charge’ for construction businesses, which will come into effect on 1 October 2019.

This will mean that suppliers of goods or services will no longer be involved in the payment of VAT to HMRC and the liability for VAT payment will instead be with the VAT registered customer. As the fraud issue was only occurring within the supply chain, the reverse charge will only apply to services between construction businesses, rather than the end user, such as private individuals, retailers and landlords.

The change is far-reaching and will directly impact all contractors and sub-contractors who supply construction services, as defined by the Construction Industry Scheme (CIS). It’s estimated that this could lead to major administrative changes for approximately 100,000 to 150,000 businesses in the sector, including many small construction firms.

Businesses should use the period up to October to review contracts, update systems and otherwise prepare themselves for this change, particularly in identifying which of the services they are supplied with will include a reverse charge. However, because HMRC are applying the reverse charge to services using the existing list from the CIS, it means that, if a subcontractor is registered with HMRC for CIS, there will be no need to work out if their service will be affected by the reverse charge.

Ultimately, the year ahead presents both challenges and opportunities - if, perhaps, more of one than the other. We at Clarion look forward to working with the industry to achieve some positive results over the course of 2019.

If you’re worried that you’ll be affected by anything that’s happening this year, our Construction Team would be pleased to discuss any of these changes with you.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.