Fraud Opportunities in the Construction Industry – VAT and CIS
HMRC believe they lose over £100m each year in VAT fraud related to the construction industry. VAT fraud can occur where labour only is provided. These fraudsters will typically charge VAT on their labour supply, receive that VAT, but not pay it over to HMRC.
In the Autumn budget this year, the government announced their intention to introduce a domestic “Reverse Charge”. This will require the customer, rather than the constructer, to account for the VAT liable on standard or reduced rated building projects.
This Reverse Charge procedure has been in place for construction services in many EU countries for many years. It has proved quite effective, on the basis that as the subcontractors don’t receive the VAT, they cannot steal it.
Following the budget, H M Revenue and Customs launched a consultation document, and have just published the summary of responses.
The implementation date has been announced as October 2019, and so will add to other VAT changes arising from BRexit and Making Tax Digital (MTD).
The government proposes that the definition for construction services will follow the CIS definition and there will be as few exemptions as possible, the main one being construction services liable at the zero rate.
Draft legislation and a further more technical consultation is due to be released next year.
The Treasury also continues to lose direct tax where traders manage to achieve Gross Payment Status (GPS) and then abscond without paying tax on their receipts.
Following the above consultation which included questions on changes to the Construction Industry Scheme GPS and possible impact on businesses, the government have decided not to make changes to the scheme itself.
It has however, announced an immediate increase in their policing of GPS. Those businesses who are currently paid gross, or who have applied for gross payment status will have their tax compliance history subject to closer scrutiny going forward.
If you would like to discuss VAT or CIS in more detail, or you would like to speak with a member of our team, please contact Carol Watters or call 01772 821021 to be put in contact with a member of our Tax team.