Cotswold accountants warn businesses working in the construction sector over VAT changes coming into effect this autumn

Professionals at a Cotswold accountancy firm are warning that businesses that work in the construction sector will need to get to grips to major changes to the way they deal with VAT from this October.

Members of the team at McGills Chartered Accountants, which has offices in Cirencester and Malmesbury, issued the warning amid fears that some affected businesses may be unaware of the change that could have major implications for their cash flow.

The VAT reverse charge scheme will change permanently the way VAT is collected on building supplies and materials.

The scheme is being introduced to crack down on a type of tax fraud known as ‘missing trader fraud, which takes place between multiple traders, exploiting the UK’s complicated VAT payment and collection system.

The most basic version of this fraud involves a trader somewhere along the supply chain selling building supplies or materials before disappearing with the VAT portion of the sale.

However, under the new regulations set out by the VAT reverse charge scheme, the responsibility for the reporting of a VAT transaction moves from the seller to the buyer.

This means the customer will be liable to account to HMRC for the VAT in respect of purchases rather than the supplier (this is the ‘reverse charge’).

The reverse charge will apply through the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS) up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services – these businesses are referred to as ‘end users’.

The most recent figures suggest that around 100,000 to 150,000 contractors and businesses need to take note and be ready to implement the scheme from day one.

Sharla Dandy, a Partner and Chartered Tax Advisor at McGills Chartered Accountants, said: “Firms working in the construction sector need to be making plans for this change, particularly if they are using VAT money to support cash flow.

“The rules have a potential to be open to interpretation as to whether a business is selling to an ‘end user’ or not, so where there is any doubt, businesses should seek professional tax advice.”