Domestic reverse charge was introduced for construction
industry to tackle VAT fraud and was effect from October 2019. This means bringing
VAT to account is the responsibility of the buyer rather than the supplier.
HMRC have issued a consultation on the draft statutory instrument.
The VAT domestic reverse charge is implemented to the
construction industry for remove the opportunity of missing trader fraud which
has been increasing over the past few years .
This is calculated specifically for the requirements supply of
construction services between construction businesses.
What supplies does
the reverse charge apply to?
The VAT domestic reverse charges are only applicable on
particular construction supplies for construction industries between businesses
and not to consumers. The Legislation introduce VAT reserve charges to target
missing trader fraud which can only be perpetrated by businesses.
Under the new VAT domestic reverse charges law, the listed
supplies subject to either the standard rate or reduced rate. The VAT reverse
charge will also be applied to the goods supplied with identified services.
What are specified Work
in construction Industry?
Specified Work in construction Industry are determined based
on the definition of ‘construction operations’ used in the Construction Industry Scheme (CIS) under section 74 of the Finance Act 2004.
These are:
- Alteration, Construction, repair, offshore installations , demolition, extension or dismantling of structures or buildings.
- Construction, repair, alteration, demolition or extension of any works forming, Form on a part of the land, including walls, power-lines, roadworks, etc.
- building installation or building structure of systems of lighting, heating, fire protection, air-conditioning, power supply, ventilation, sanitation, drainage, or water supply.
- Structures and building internal cleaning and, so far as carried out in the course of their , alteration, construction, repair, restoration or extension
- Decorating or Painting the building or structure internal or external surfaces.
VAT domestic reverse charge will apply if the supply
contains a mixture of particular and other construction work and will be
classified as a single supply of specified construction work.
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