Construction firms and builders in Wales are being urged to get their books in order ahead of a change to VAT rules for the construction industry which comes into force in less than two weeks.
Wales’ leading independent accountancy and financial planning firms, Bevan Buckland LLP, issued the warning about the VAT Reverse Charge which is being introduced by HMRC on March 1 in an effort to curb tax dodging within the construction industry that the Government believes runs to billions of pounds and is often linked to money laundering.
The practice that HMRC is combating with this change sees some construction firms charge VAT for the services they supply but then disappear without paying their VAT bill – taking with them a five percent or 20 percent additional profit.
The reverse charge puts the onus on the customer who receives a construction service to account for the supplier’s output VAT and to pay this to HMRC, instead of to the supplier. So, by moving the VAT charge down the supply chain, HMRC intends to make this kind of fraud impossible.
Harri Lloyd Davies, Partner at Bevan Buckland LLP, said: “Similar reverse charge schemes have already been set up for mobile phone and computer chip retailers, as well as wholesale energy suppliers.
“From March 1, people who run VAT registered construction firms under the Construction Industry Scheme must change their invoicing and start using a very precise terminology that makes it clear on their invoices that this reverse charge has been applied.
“So, firms will need to look at their invoicing software and templates and to prepare VAT returns differently. Not all construction services will fall within the new rules, but, conversely, if you are not VAT-registered you may find that you now need to register for VAT.
“The VAT Reverse Charge will typically affect tradespeople who either take on contracts or subcontract others within a supply chain.
“You must update your accounting software to ensure it can deal with the reverse charge, assess the impact of the change on your cashflow and make sure staff who are responsible for VAT accounting know how to deal with the reverse charge.
“If you’re a contractor and you haven’t already done this, we advise you to review all your contracts with subcontractors now, work out whether the reverse charge will apply, and notify your suppliers if it will.
“If you’re a subcontractor who is only learning about this now, contact your customers to find out whether the reverse charge will apply. This is a complex process and many firms will need professional support to help them make sure they are getting things right, so I would advise talking to an accountant ahead of the implementation date.”
Bevan Buckland LLP is the largest independent accountancy firm in Wales providing practical support and strategic accounting, tax and financial planning advice for small to medium-sized businesses. Headquartered in Swansea, the firm has offices in Carmarthen, Pembroke, Haverfordwest and St David’s.
For more information visit: www.bevanbuckland.co.uk
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