HM Revenue & Customs (HMRC) has warned businesses in the construction sector that it plans to introduce new rules that will affect them as it aims to tackle VAT fraud.
Under the initiative, which takes effect from 1 October this year, recipients of certain construction services will be responsible for accounting for VAT rather than the supplier.
The planned rules are part of a specifically targeted campaign, which aims to tackle issues with the supply of services between construction firms, and will broadly apply to construction firms making payments through the Construction Industry Scheme (CIS).
Under the rules, a VAT-registered business, that supplies certain construction services to another VAT-registered business for onward sale, will need to issue a VAT invoice which confirms the service is subject to the new domestic reverse charge.
The second business will then have to account for the VAT on the services supplied through its VAT return, instead of paying it to the supplier, so that it can recover the VAT amount as input tax.
However, the rules will not apply to construction services provided to a property owner, or to services provided to a main contractor who is selling a newly-completed building to a customer.
When the scheme was announced, businesses believed that the new rules would only apply to labour-only services, but this is not the case as HMRC has said that the rules will also apply to materials.
The taxman has already taken a similar approach to target so-called ‘missing trader’ fraud in other high-risk sectors, including the sale of computer chips and mobile phones.
