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<\/p>\nIn 2017 the Government floated the idea of a change to the VAT treatment of certain elements of the construction industry supply chain. They believe that criminal gangs were offering specific supplies in order to perpetrate \u201cmissing trader\u201d or \u201ccarousel\u201d fraud. A Government paper indicated that this was losing the Exchequer an estimated \u00a3100m a year.<\/p>\n
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The Government believes that this fraud typically occurs when sub-contractors are set up to provide workers. The sub-contractor charges their customer for the supply of people and legislation requires this cost to have VAT added to it. However the cost to the sub-contractor is the payment of wages which does not have any VAT liability. The sub-contractor collects VAT from their customer and then disappears without paying it to HMRC. As the sub-contractor might have been set up for a single site this makes it difficult for HMRC to track the perpetrators.<\/p>\n
The Government consulted the construction industry on the impact of a reverse charge mechanism to prevent this fraud. A reverse charge was suggested as it has been used to prevent other forms of missing trader\/carousel fraud.<\/p>\n
The Government estimate that there are 300,000 business at different points in the supply chain and therefore the impact of a reverse charge would be more widespread than its other applications.<\/p>\n
It has now been confirmed that the reverse charge will come into effect from 1 October 2019. HMRC feel that they have listened to UK businesses requests that they are given a considerable lead time to review and amend their systems in advance of this change.<\/p>\n