HMRC demands building contractors to charge themselves VAT
The Enterprise Management Incentive (EMI) allows selected employees (often key to the employer) to be given the opportunity to acquire a significant number of shares in their employer through the issue of options.
HMRC has now published a draft legislation, a draft explanatory memorandum and a draft tax information and impact note on the Reverse Charge (RC) for construction, following an initial consultation. HMRC have asked for comments on this before 20th July 2018 as the final version of the draft order and guidance will be published before October 2018.
HMRC had previously warned that EMI share options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for the tax advantages afforded to option holders.We await official confirmation on the position from HMRC.
When the new rules come into force, supplies of standard or reduced-rated building services between VAT- registered businesses in the supply chain will not be invoiced in the normal way. Under the RC a main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) accounts for VAT on the net value of the supplier’s invoice and at the same time deducts that VAT – leaving a nil net tax position.
The RC only applies to other construction businesses which then use them to make a further supply of building services, and not to end users e.g. private individuals, retailers and landlords.
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Type of work affected
- Installation of heat, light, water and power systems
- Painting & Decorating
- Erection of Scaffolding
- Civil Engineering works and Associated site clearance
- Foundation Work
- Professional services of architects or surveyors, or consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape.
- Drilling for, or extraction of, oil, natural gas or minerals, and tunnelling or boring, or construction of underground works, for this purpose.
- Manufacture of building or engineering components or equipment, materials, plant or machinery, or delivery or any of these things to site.
- Manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection or delivery of any of these things to site.
- Sign-writing and erecting, installing and repairing signboards and advertisements.
- The installation of seating, blinds and shutters or the installation of security.
HMRC has been engaging with trade bodies and discussions are ongoing. One of the main concerns is the burden for traders of identifying customers who are liable for the RC. This means checking VAT registration numbers and obtaining evidence that a customer is an ‘end user’ or not so that the invoice is done correctly.
The idea of having a draft legislation and guidance by October 2018 is to allow businesses to have 12 months to make the necessary changes to systems, prior to implementation on 1st October 2018. Within this period is will allow businesses to prepare for Brexit and Making Tax Digital.
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