VAT change coming for construction industry
The new measures are being introduced to reduce VAT fraud and evasion by placing the responsibility for VAT on the customer. HMRC believe that some small VAT-registered suppliers are charging VAT to their customers, but not then paying the VAT on to HMRC.
The reverse charge mechanism won’t apply in certain circumstances, for instance:
- If the supplies are zero-rated, including the construction of housing.
- The customer is an ‘end user’, for instance the property owner or the main contractor who sells a new build to a customer.
- Where businesses that supply certain services to connected parties within a corporate group structure, or with a common interest in land.
- The supplier and recipient are landlord and tenant, or vice versa.
Instead, the normal VAT accounting rules will apply to these supplies.
If you are concerned the new reverse charge mechanism will make your VAT administration more complicated, we can advise you on how best to handle it.
VAT explained video series: five short videos covering a range of topical issues, including the reverse charge, land & buildings and the 'option to tax' >watch now
Three things to watch out for in your VAT return
The risks of incomplete VAT filings have been highlighted by a recent victory for HMRC over an appeal.
The appeal – made by Sacutia Healthcare Ltd – concerned the father of the company director, who claimed a defence based on carelessness. Unsurprisingly, HMRC took the view that this amounted to ‘deliberate but unconcealed’ behaviour, which is why it applied substantial penalties of £24,072 on a total assessment of £57,839.
The nature of the filing errors should provide warning for those with responsibility for their company’s VAT filing.
Export evidence
HMRC found that the VAT return was missing paperwork to support declared exports of goods and documents made to a company that the father was involved with. HMRC also found no record of Sacutia as an exporter. It is essential that you keep complete and accurate records of exports for VAT.
Deposits on customer payments
The output tax was not correctly reported on customer deposits. A tax point is created whenever a company receives a deposit, as well as the balancing payment, so you must ensure your VAT records reflect every stage of a customer transaction.
Input tax evidence
As well as the issues with export invoices, HMRC found that Sacutia had claimed input tax on supplies of goods using invalid invoices. They also found uncertainty around pro-forma and VAT invoices, and mistakes in the accounting records. As with export records, you must keep your accounting records complete and accurate.
The case demonstrates the high penalties HMRC will issue where mistakes are made with VAT filing. With Making Tax Digital for VAT just around the corner, we can help you ensure your company filings are error-free.
Counting down to Making Tax Digital for VAT
The stage is still set for Making Tax Digital (MTD) for VAT to be rolled out on 1 April. But according to the Institute of Chartered Accountants in England and Wales, 40% of relevant businesses aren’t aware they are about to be affected.
Despite calls from the House of Lords at the end of last year to postpone MTD, there appears to be no stopping this significant change going forward. The first wave of implementation requires all VAT-registered businesses with turnover above the £85,000 VAT threshold to file and pay VAT online through specific software interfaces, as well as keep digital records.
The pilot programme was expanded in October to cover around 500,000 businesses and you can still join it. HMRC is still issuing guidance and clarification, so it’s important that you know where you are in your preparations.
Businesses that are eligible for MTD for VAT should now be working through the developments necessary to be able to comply. Depending on how you have been managing your accounting, you may need to change in one of the following ways:
• Move from paper-based records to digital MTD.
• Move from spreadsheets to filing with MTD via bridging software.
• Move from spreadsheets to full MTD-enabled software.
• Work with your existing software as it becomes MTD compatible.
Despite calls from the House of Lords at the end of last year to postpone MTD, there appears to be no stopping this significant change going forward. The first wave of implementation requires all VAT-registered businesses with turnover above the £85,000 VAT threshold to file and pay VAT online through specific software interfaces, as well as keep digital records.
The pilot programme was expanded in October to cover around 500,000 businesses and you can still join it. HMRC is still issuing guidance and clarification, so it’s important that you know where you are in your preparations.
MTD for VAT webinars - three short webinars on what you need to get ready for 1 April 2019. Hosted by Mark McRae and Kim Matheson from our Cloud Accounting and Business Advisory team >watch now
Businesses that are eligible for MTD for VAT should now be working through the developments necessary to be able to comply. Depending on how you have been managing your accounting, you may need to change in one of the following ways:
• Move from paper-based records to digital MTD.
• Move from spreadsheets to filing with MTD via bridging software.
• Move from spreadsheets to full MTD-enabled software.
• Work with your existing software as it becomes MTD compatible.
We can work with you to help you plan the best way forward. If you will be submitting your VAT 
returns yourself, a growing list of software providers is on the HMRC website. You can also check that your existing software supplier is already included or planning upgrades.
It may take time to settle into the best solution. But even if you are not immediately affected by the 1 April change for VAT, there are other deadlines on the horizon. Certain other VAT registered businesses will need to start filing under MTD from October 2019, and from April 2020, MTD is scheduled to be implemented for income and corporation taxes. All VAT registered businesses may also end up coming under MTD, regardless of turnover.
If you are in the first wave of businesses required to move to MTD for VAT on 1 April, you need to ensure that you are ready. Get in touch if you need to discuss your MTD preparations. Email: This email address is being protected from spambots. You need JavaScript enabled to view it. to arrange an appointment.
returns yourself, a growing list of software providers is on the HMRC website. You can also check that your existing software supplier is already included or planning upgrades.
It may take time to settle into the best solution. But even if you are not immediately affected by the 1 April change for VAT, there are other deadlines on the horizon. Certain other VAT registered businesses will need to start filing under MTD from October 2019, and from April 2020, MTD is scheduled to be implemented for income and corporation taxes. All VAT registered businesses may also end up coming under MTD, regardless of turnover.
If you are in the first wave of businesses required to move to MTD for VAT on 1 April, you need to ensure that you are ready. Get in touch if you need to discuss your MTD preparations. Email: This email address is being protected from spambots. You need JavaScript enabled to view it. to arrange an appointment.