HMRC has announced a one-year delay to the introduction of the VAT domestic reverse charge for building and construction services.
The reverse charge represents part of a government clamp-down on VAT fraud. According to the government, large amounts of VAT are lost through ‘missing trader’ fraud. As part of missing trader fraud, VAT is charged by a supplier, who then disappears, along with the output tax. The VAT is thus lost to HMRC. The construction industry is considered a particularly high-risk sector.
The reverse charge when introduced will not change the VAT liability but instead it will change the way that VAT is accounted for. In the future, the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. This is called a reverse charge. The reverse charge is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS).
The charge was due to come into effect on 1 October 2019. It has now been delayed by 12 months until 1 October 2020 due to fears that businesses in the construction sector were not ready.
HMRC says it remains ‘committed to the introduction of the reverse charge’, and has put a robust compliance strategy into place in order to tackle fraud in the construction sector.
Internet link: GOV.UK revenue and customs brief
The government has initiated a review of the Loan Charge and whether the policy is an appropriate way of dealing with disguised remuneration loan schemes used by individuals who entered directly into these schemes to avoid paying tax.
Sir Amyas Morse, the former Comptroller and Auditor General and Chief Executive of the National Audit Office (NAO), will lead an independent review of the Loan Charge.
The government has asked Sir Amyas Morse to report back by mid-November, giving taxpayers certainty ahead of the January Self Assessment deadline.
Internet link: GOV.UK news
As of 6th September 2019, the introduction of this tax has been delayed by HMRC to 1st October 2020. The reason for the delay is that industry is not yet ready to implement the changes and the 12 months delay will avoid coinciding with Brexit.
Are you aware of the changes in VAT rules if you are involved in Construction?
Construction Industry Reverse VAT charges
If you are involved in the construction industry it is important that you are aware of the VAT changes that come into effect 1st October 2019.
This is a significant change to the way you account for Output VAT on contract work.
It applies in the following circumstances:
• The supply consists of Construction services and materials
• It is standard or reduce rate VAT
• It is between a UK VAT registered supplier and UK VAT registered customer
• Both parties are registered for CIS
• The customer intends to make an ongoing supply of construction services
• The supplier and customer are not connected.
What do you Need to Do?
With contracts starting 1st October 2019 you will need to check whether they fall within the reverse charge rules and when you will receive payment.
If payment is received before the 31st December 2019 then you account for VAT as normal for receipts after this date reverse charge rules will apply.
What does this mean in practice?
Where the rules are met instead of charging output VAT your invoice will say
‘Reverse charge applies at the VAT rate of either 20% or 5% if reduced rate’
Does this affect my VAT scheme?
Yes, it may do contact us for further advice.
Who pays the VAT?
Where you and the contractor are VAT registered then the contractor pays the VAT on your behalf. Please bear in mind that this may influence your cashflow as you will no longer be receiving the gross invoice only the net amount. You may wish to consider switching to monthly VAT returns. Please ask us for advice.
There are detailed rules on what type of work applies and circumstances of continuous supply so if you require any assistance on this please do not hesitate to contact us.
The Financial Conduct Authority (FCA) has agreed a plan to give the payments and e-commerce industry extra time to implement Strong Customer Authentication (SCA).
From 14 September 2019, new European Union (EU) rules apply that impact how banks or payment services providers verify their customers’ identities and validate payment instructions. The Strong Customer Authentication (SCA) rules are intended to enhance the security of payments and limit fraud.
The FCA has agreed an 18-month plan to implement SCA with the e-commerce industry which includes card issuers, payment firms and online retailers. The plan reflects the opinion of the European Banking Authority (EBA) that more time was needed to implement SCA given the complexity, lack of preparedness and the potential for a significant impact on consumers.
Jonathan Davidson, Executive Director for Supervision – Retail and Authorisations, said:
‘The FCA has been working with the industry to put in place stronger means of ensuring that anyone seeking to make payments is not a fraudster. While these measures will reduce fraud, we want to make sure that they won’t cause material disruption to consumers themselves; so we have agreed a phased plan for their timely introduction’.
The FCA has confirmed that it will not take enforcement action against businesses if they do not meet the relevant requirements for SCA from 14 September 2019 in areas covered by the agreed plan as long as there is evidence that they have taken the necessary steps to comply with the plan. At the end of the 18-month period, the FCA expects all businesses to have made the necessary changes and undertaken the required testing to apply SCA.
Internet link: FCA press release
Two self assessment deadlines are approaching:
5th October 2019
For those individuals who have not previously completed a tax return but need to report a liability for 2018/19.
31st October 2019
For those individuals who have previously submitted ‘paper’ self assessment tax returns the deadline for the 2018/19 return is 31 October 2019. Returns submitted after that date must be submitted electronically or they will incur a minimum penalty of £100. The penalty applies even when there is no tax to pay or the tax is paid on time.
If you would like any help with the completion of your return, please do get in touch.
Internet link: HMRC deadlines