HMRC has announced that there will be a delay of one year, to the introduction of the VAT domestic reverse charge for construction and building services which is apart of there clamp-down on fraud in these sectors.
Large amounts of VAT are lost through ‘missing trader’ fraud which costs revenue authorities billions every year. Missing trader fraud is where VAT is charged to a supplier and then they disappear, along with the output tax. The VAT of those goods is then lost through this exploitation.
The construction industry in particular, is thought to be an extremely high-risk sector for missing trader fraud.
The VAT domestic reverse charge was introduced to not change the VAT liability, but change the way its accounted for. The scheme will mean that the recipient of the services, rather than the suppliers, will account for VAT on specified building services.
Reverse charge is a business-to-business charge, which works by applying VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme.
This scheme was due to take effect on October 1st 2019 but has now been delayed a further 12 months until October 2020. HMRC feared that businesses in this particular industry were not ready for this change. HMRC has stated that it will remain committed to the introduction of this change for next year.
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