HMRC has published draft legislation proposing a VAT Reverse charge for construction services. This has been introduced in order to combat fraud in the construction sector, where VAT is not paid over to HMRC by the subcontractor/supplier.
The legislation is currently in a 6 week consultation period which ends on 20th July 2018. The final version of the legislation will be published in October 2018 and will come into effect on 1st October 2019. During this consultation period, members of the public are invited to comment on the draft legislation.
The new legislation will affect businesses involved in buying and selling construction services. However, it will not apply to zero-rated supplies, or services between connected parties. Where both the supplier and customer are VAT Registered, the customer is liable to account for and pay the VAT to HMRC on behalf of the supplier.
The new rules will also have an effect on the calculation of turnover for VAT Registration purposes and could result in a non-VAT Registered business having a far lower effective VAT Registration Threshold, since the ‘self-supply’ services are considered as turnover in this calculation for the contractor receiving the supply from the subcontractor.
Details of the new legislation, and details of how you can comment during the consultation period can be found here: //www.gov.uk/government/consultations/draft-legislation-vat-reverse-charge-for-construction-services