5th April 2017

In response to the escalating issue of organised tax fraud that has arisen within the construction sector, HM Revenue and Customs (HMRC) have launched a consultation on policy and legislative provisions to combat what they see as a significant risk to public revenue.

Announced by the Chancellor Philip Hammond during the recent Spring Budget, the consultation will seek the views of stakeholders and individuals on a range of policy and legislative options, from the introduction of a VAT reverse charge, to criteria changes to gross payment status within the Construction Industry Scheme (CIS).

Usually operating around large civil engineering projects, HMRC have noted that fraudulent groups are creating new businesses, or placing ‘puppet’ directors in charge of existing businesses. This has resulted, therefore, in them being able to underpay any VAT or income tax by operating under the radar.

It is hoped the consultation will serve as an effective tool to involve large businesses in the ongoing battle against tax evasion, whilst ensuring that compliant business will not feel any negative impact from any potential changes. The closing date for submissions is 9th June 2017.

Mark Hetherington, VAT Partner at UNW, believes that while the consultation to combat VAT fraud is a welcome one, there may be several issues surrounding the mooted changes: “Land and Property Construction is one of the most complex areas of VAT. Dealing with queries surrounding it can usually amount to around a third of our weekly workload.

“The changes proposed by HMRC are clearly badly needed to protect from attack by organised criminal gangs, especially in regards the funding pressures our schools and hospitals are under. In recent years, there has been an increasing acceptance that everybody needs to pay their fair share of tax, and it is blatantly wrong that fraudsters in this sector are effectively stealing from the public purse.

“To ensure the proposed changes are effective, they need to be carefully thought out and it is pleasing to see that HMRC has already identified several practical difficulties that need to be overcome, and I hope that the proposed changes will focus on the real areas of threat.”

Lee Muter, Employment Taxes Partner at UNW, added: “Alongside the proposed VAT change, HMRC is also proposing to tighten the conditions for new businesses obtaining gross payment status for the CIS. This enables a contractor to be paid by their customer on a gross basis, without an immediate deduction for tax – the contractor will then settle its tax liability with HMRC in the normal manner, for example by a combination of PAYE and Corporation Tax returns.”

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