Consultation paper: VAT in the construction industry

HMRC has published a consultation on policy options to prevent supply chain fraud in supplies of labour provision within the construction sector. Specifically, HMRC asks for views on a VAT domestic reverse charge and a tightening of the rules on gross payment status within the construction industry scheme (CIS).

Fraud
The changes proposed by HMRC are largely designed to prevent missing trader VAT fraud in the construction industry which HMRC believes has resulted in £millions of lost VAT. In missing trader frauds, the business will disappear before paying over their VAT liability.
A reverse charge for construction services already operates in some other European Member States.

Domestic reverse charge
The domestic reverse charge has been used by HMRC to address VAT fraud in other industries such as the telecoms industry (mobile phones) and the energy sector. 

With the domestic reverse charge, the purchaser of the goods or services accounts for output tax due on a supply rather than the provider of the goods or services. This VAT will be claimed as input tax by the purchaser and for most transactions the VAT will be netted off.

HMRC frequently tries to recover lost tax by denying input tax recovery from 'innocent' businesses in the supply chain. Missing trader fraud is therefore a concern for legitimate businesses who need to carry out due diligence on their supply chain and customers.

Responses
Responses should be emailed by 9 June 2017 to indirecttax.vatsncfteam@hmrc.gsi.gov.uk.

Or sent to:

Nick Chambers
Customs and Indirect Taxes
HM Revenue and Customs
Room 3/36
100 Parliament Street
London
SW1A 2BQ

Please contact Terri Bruce or Lisa Burnside for further information.
 

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