In our recent news VAT: New Accounting Procedures for Builders we talked about HMRC introducing domestic reverse charge VAT for construction services. A domestic reverse charge means the UK customer who get supplies of construction services must account for the VAT due on these supplies on their VAT return rather than the UK supplier.
The idea of this is to remove the scope for fraudsters to steal the VAT due to HMRC and follows similar measures introduced in response to criminal threats for mobile telephones, computer chips, emissions allowances, gas and electricity, telecommunication services and renewable energy certificates.
There has been a long lead-in time ahead of the anti-fraud measure coming into force. The Government first confirmed it would be taking this measure forward at Autumn Budget 2017. A technical consultation on the draft legislation and its impact took place in summer 2018 and the final legislation and guidance were published in November 2018.
The long lead-in time was to allow for potential cash-flow and administrative impacts the change could have on businesses.
Businesses need to adapt their accounting systems for dealing with VAT and there will be a negative impact on the cash-flows for many affected businesses, as they will no longer get VAT payments from customers for services where the reverse charge applies.
More information from HMRC can be found HERE.