Reverse Charge – UK consultation and EU proposals
The drive to reducing the VAT Gap has seen a specific UK consultation announced in the Spring Budget to combat missing trader fraud on the provision of labour in the construction sector. One approach in the consultation suggests that instead of the supplier charging VAT on the labour supplies in the construction sector, the VAT would be accounted for by the customer on their VAT return as Output Tax and effectively then recovered by them as Input Tax on the same VAT return subject to their own VAT recovery position.
This use of a reverse charge mechanism to stop fraudulent suppliers charging customers VAT and then not passing the monies to the tax authorities is another part of wider EU proposals we are seeing currently.
The EU proposals, if accepted, would allow EU states to apply a system whereby sales between businesses of more than €10,000 would be invoiced VAT free with the final customer accounting for the VAT on the supply.
Reverse Charge plans such as these raise a range of challenges for businesses to manage pre-or post-Brexit. Certainly, concerns are being expressed on the management of transaction information through ERP systems as to the added level of identification required.
All of this means that we need to keep up to speed not just with the changes currently coming out from the EU which may impact before the UK exits the Single Market but also keep looking ahead to what a post Brexit VAT system would look like.