HMRC have published a consultation ‘Fraud on provision of labour in the construction sector: consultation on VAT and other policy options’.
The consultation, originally announced at Spring Budget 2017, looks at options for combatting fraud on labour provision in the construction sector.
HMRC are concerned that organised groups are using schemes with artificially long bogus supply chains:
- Each entity in the chain obtains gross payment status under the Construction Industry Scheme (CIS) and is VAT registered.
- The bottom entity then goes ‘missing’, resulting in a loss of VAT and income tax.
The consultation proposes some possible options to target this, including:
- A VAT domestic reverse charge similar to those already in place in the telecoms and energy sectors.
- Changes to the qualifying criteria for gross payment status under CIS.
HMRC are also interested to hear of any alternative proposals to tackle this fraud.
The consultation closes on 9 June 2017.
Links
Our subscriber guides:
CIS: Contractors and Subcontractors
Reverse charge and place of supply
External links
HMRC consultation: Fraud on provision of labour in the construction sector: consultation on VAT and other policy options
Summary of consultation questions
1. Do you think the scope of the reverse charge for construction services should exclude supplies to final customer?
2. Do you think a labour / non-labour threshold for the application of the reverse charge should apply throughout the supply chain? If so, at what level should it be set?
3. Are there any implications we should consider if there is no designated main or principal contractor?
4. Can you think of reasons why architects or engineers should not be treated as main contractors for reverse charge purposes? Are there other similar recipients of such supplies who should have the same treatment?
5. What are your views on using the CIS definition as the reverse charge definition? Are there other options that should be considered?
6. Do you have any views on whether a narrower CIS definition or alternative qualifying criteria could be used to exclude small businesses instead of a sales based threshold?
7. Would setting a threshold by invoice value create uncertainty and lead to a confusing application of the reverse charge?
8. Are there contracts that do not lend themselves to the application of a threshold in this way and if so can you provide details please?
9. If you think a threshold based on contract value would work, do you think this should be based on sales made monthly, annually or a combination?
10. If you disagree please can you explain why a reverse charge might affect self-billing or applications for payment arrangements?
11. Can you see problems with requiring the reverse charge to apply to services supplied by FRS users?
12. If a reverse charge was to be introduced, how long would you need to make the necessary IT and billings changes after any announcement? Does having a threshold significantly alter this?
13. Do you agree that any changes to the CIS should be restricted to companies?
14. We are interested in views on whether the changes to the turnover test should only be applied to companies that have not traded before?
15. If the threshold was to be increased, at what level do you think it should be set in order for it to be effective against fraud whilst not excluding too many legitimate businesses? Should the increased threshold apply if an applicant’s controlling company already has GPS?
16. What are your views on requiring customers to notify HMRC of changes of ownership or control of businesses supplying labour?
17. Would it be feasible to define certain triggers after which contractors are required to determine whether control of subcontractors has changed? How much burden would that place on contractors?
18. Should a different compliance test be set for those directors or shareholders who have not been previously required to fulfil obligations under the Taxes Acts?
19. Are there other options that we should consider for combatting this fraud?
20. What impact are the proposed changes likely to have on your business?
21. Are there any specific impacts on small and micro businesses that are not covered in this chapter and chapters 2 and 3? If so, please provide details of the anticipated one-off and on-going costs and burdens.
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