VAT fraud in the Construction industry presents a significant risk to the Exchequer. Organised criminal gangs fraudulently take over or create shell companies to steal VAT whilst operating alongside actual construction services. This is commonly referred to as ‘missing trader’ fraud.
As of October 1st 2020 a reverse charge on certain building and construction services will be introduced. Implementation has been delayed by 12 months amid concerns that not all businesses were ready for original start date of 1st October 2019 and also with the uncertainty of Brexit.
In a significant change to the way VAT is collected for the building and construction industry, the measure will, for certain supplies of construction services, mean that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier – the ‘reverse charge’. This will remove the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer.
This legal requirement can be met in SAP by adding new reverse charge VAT codes for both purchases and sales as well as amending the various VAT code derivation rules.
- In Sales, to ensure your billing includes the new tax code, you must review the date used to derive taxes, the relevant master data and the pricing scenarios applied during document creation.
- In Purchasing, a review is also required, as tax codes can be derived from a number of sources, for example, Contracts, Purchasing Information Records, Pricing Conditions or manual entry.
Preparing now will make sure that the new setup is ready to start working on 1st October 2020 and minimise any potential cut-over activities.