Budget: serious risk to businesses as consultation to police VAT trader fraud announced

The Chancellor’s Spring Budget announced that a consultation to crack down on VAT trader fraud in the construction sector would take place. The consultation will in particular look at applying a reverse charge mechanism so that those paying for a subcontractor’s work must account for VAT having been paid.

Roy Maugham, head of tax in our London office, says of the crack down: “Should this change come into force many businesses in the construction industry could be put at considerable risk.”

“Contractors have no way of knowing whether a subcontractor needs to be registered for VAT, and, therefore, this will be very difficult to police. Construction businesses will be left liable for tax evasion of other businesses without any way of preventing that fraud.”

“A subcontractor that does not reach the current VAT registration threshold will have no way to prove this- other than a lack of VAT registration documents.”

“Unless the government plans to bring in a nil registration threshold so that all payments are subject to VAT it is hard to understand how they will enforce this.”

“HMRC have already been targeting the construction sector due to the high number of self-employed workers – and this will provoke further scrutiny into the sector.”