The Chartered Institute of Taxation (CIOT) is calling for HMRC to delay the introduction of the VAT reverse charge due to be introduced from 1 October 2019. Many small and medium size construction firms have not had adequate opportunity to prepare for a major change in accounting for VAT, according to the CIOT.
Some 150,000 businesses in the construction and building sector will be affected by the change. The CIOT hopes a delay will lessen the likely flurry of disputes between suppliers and customers as to whether or not VAT should be charged.
A recent survey by the Federation of Master Builders indicates that 69% of construction SMEs surveyed have not even heard of the new reverse charge. CIOT members report a similar lack of awareness among SME construction businesses.
The CIOT believes a start date of 1 April 2020 is more appropriate as this would allow time for a dedicated information campaign to be operated by HMRC, with the assistance of industry and professional bodies.
The aim of the domestic reverse charge is to combat missing trader fraud in the construction sector. Under the new regime, a VAT-registered business, which supplies certain construction services to another VAT-registered business for onward sale, will be not be required to account for VAT, but must issue an invoice stating that the service is subject to the domestic reverse charge. The recipient of the supply must account for the VAT due on the supply through its VAT return, instead of paying VAT to the supplier. The recipient may also recover that VAT amount as input tax, subject to the normal rules for claiming credit. Unlike other types of reverse charge, the value of such reverse charge services will not count towards the VAT registration threshold.
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