The Chartered Institute of Taxation (CIOT) has welcomed today’s announcement¹ that construction firms will get an extra year to prepare for a major change in accounting for VAT.
The CIOT had written to HMRC in July setting out its concerns about the construction industry’s readiness for the new VAT reverse charge2 that was scheduled to be introduced from 1 October 2019 and requesting a delay.3 Some 150,000 businesses in the construction and building sector will be affected by the change4. The CIOT hopes the delay to 1 October 2020 will lessen the likely flurry of disputes between suppliers and customers as to whether or not VAT should be charged.
A recent survey5 by the Federation of Master Builders had indicated that 69 per cent of construction SMEs surveyed had not even heard of the new reverse charge. CIOT members had reported a similar lack of awareness among SME construction businesses.
Linda Skilbeck, Vice-Chair of CIOT’s Indirect Taxes Sub-committee, said:
“Today’s announcement is good news.
“There is substantial evidence of a lack of awareness of this change, and a lack of preparedness even among those businesses who are aware of it.
“If the government had pressed ahead with a start this October we envisaged significant confusion amongst businesses, leading to disputes between suppliers and customers as to whether or not VAT should be charged. It would have led to an additional influx of calls to HMRC’s phone lines, while HMRC and its call centres were already busy dealing with the implementation of Making Tax Digital, as well as the consequences of Brexit.
“A start date of October 2020 is more sensible. This should allow time for a dedicated information campaign to be operated by HMRC, with the assistance of industry and professional bodies. Such a campaign could include direct communications with businesses in the sector, particularly those registered for the Construction Industry Scheme, as well as improvements to the content and accessibility of guidance on GOV.UK.”
Notes for editors
1. In today’s announcement HMRC said:
Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019.
To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.
2. The aim of the domestic reverse charge is to combat missing trader fraud in the construction sector. The CIOT supports actions to tackle tax evasion. However, there must be a balance between countering fraud and disrupting genuine business, and the CIOT considers there will be considerable burdens to affected taxpayers from this lack of publicity.
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.
3. CIOT’s letter was sent to HMRC on 29 July 2019 and can be found here.
6. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
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