Making Tax Digital for Business: VAT
HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. Under the new rules, businesses with a taxable turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.
The new rules will have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. For some VAT-registered businesses with more complex requirements the rules will not have effect until 1 October 2019. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.
The government has now confirmed that a ‘light touch approach’ to penalties will be taken in the first year of implementation. Where businesses are doing their best to comply, no filing or record keeping penalties will be issued.
The focus will be on supporting businesses to transition and the government will not be mandating MTD for any new taxes or businesses in 2020.
At The Hollies we work with a lot of construction firms – and rules apply to these.
VAT fraud in labour provision in the construction sector
The government will pursue legislation to shift responsibility for paying VAT along the supply chain with the introduction of a domestic VAT reverse charge for supplies of construction services with effect from 1 October 2019. Draft legislation and guidance has been issued.
The domestic reverse charge will affect supplies of ‘specified services’ at the standard or reduced rates where payments are required to be reported through the Construction Industry Scheme (CIS). Therefore supplies between sub-contractors and contractors, as defined by CIS, will be subject to the reverse charge unless they are supplied to a contractor who is an end user. End users will usually be recipients who use the building or construction services for themselves, rather than those who sell the services on as part of their business of providing building or construction services.
There will be exclusion from the reverse charge for certain supplies such as the manufacture of building or engineering equipment. But the reverse charge will apply to goods, where those goods are supplied with the specified services.
If you are concerned about any of these changes and would like to talk to us further, please don’t hesitate to give us a call.