23rd July 2018

HMRC proposes to introduce new VAT rules next year for construction services as part of measures to combat VAT fraud.

A draft statutory instrument for technical consultation has been published, together with a draft explanatory memorandum and a draft tax information and impact note.

Under the draft legislation supplies of standard or reduced-rated construction services between construction or building businesses will be subject to a domestic reverse charge. This means that the customer will be liable to self-account for VAT due, instead of the supplier.

The proposed legislation will not apply to specified supplies made to customers who are consumers, or to those that use specified supplies to make other supplies, such as those selling new houses. Focus will instead be upon the subcontract construction chain where, at present, HMRC estimates losses of around £100m per annum through VAT fraud.

The legislation is expected to take effect from 1 October 2019 and further details can be found here.

Mark Hetherington, VAT Partner at UNW, said: “The VAT rules on land and construction are already complex and the proposed changes will add to those complexities. However, with a huge estimated VAT loss to the Exchequer every year it makes sense for HMRC to introduce these changes, otherwise it becomes a financial cost to all taxpayers.”

For more information regarding the VAT services at UNW, contact Mark Hetherington at markhetherington@unw.co.uk or on 0191 243 6073.

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