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Reverse Charge for Construction Services

June 2018

Reverse Charge for Construction Services

The Construction Sector is the latest sector to become subject to reverse charge accounting rules.

The measures will take effect from October 2019. Interested parties may view the draft legislation and 'have their say' here via the HMRC consultation that runs until July 2018.

Homeowners and businesses not actively involved within the sector should not be affected as the measure targets subcontractors - presumably because some have been charging VAT and then disappearing before payment is made to HMRC.

In simple terms the reverse charge works by placing the responsibility for collection and payment of VAT in the hands of the customer rather than the supplier. The procedure has been used extensively to simplify cross border supplies of services. In most cases the VAT paid by businesses under the reverse charge is deductible as input tax and as such there is no net loss to the Treasury.

That said it does rather show the inherent weakness of a VAT system that is reliant on dutiful compliance of the taxpayer.

 

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