HMRC is cutting down on missing trader fraud in the construction industry. That’s where companies receive VAT from their customers yet have no intention of paying it over to HMRC.

Cutting Down on Missing Trader Fraud in the Construction Industry

The Domestic Reverse Charge (DRC) comes into force on 1 October 2019. It applies to around 150,000 VAT registered businesses in the construction and building sector.

Xero blog reports that “DRC affects supplies at standard or reduced rates, where payments are reported through the Construction Industry Scheme (CIS).

“Supplies between subcontractors and contractors will also be subject to the Reverse Charge. Unless they are connected to a contractor that’s an end user.

“An end user is someone who uses the construction services for themselves rather than selling these as part of their construction business.

“The Reverse Charge means the customer receiving the specified service has to pay the VAT to HMRC instead of the supplier. In turn the customer can recover the VAT, subject to the normal rules for VAT recovery.”

Software Support for Domestic Reverse Charge

Cloud accounting companies are working hard to deliver support for DRC through their software packages. Inevitably there will be errors during the initial implementation period. But HMRC has said it will apply a ‘light touch’ during the first six months.

You can find out more from the gov.uk website:

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

https://www.gov.uk/guidance/the-vat-domestic-reverse-charge-procedure-notice-735

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