Tax points in the construction industry

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Most tax points fall within either the usual ‘Basic’ or ‘Actual’ categories. VAT Act 1994, s6 provides for these.

But VAT being what it is, there are numerous exceptions. And one covers services in the construction sector. This was highlighted in a case back in 2004. Cross Levels Developments Ltd considered a VAT planning arrangement where a college established a captive construction company to carry out certain works. The scheme fell foul of the provisions of VAT Regulation 93. This creates a tax point in relation to services performed where no invoice is issued, and no payment made, at the time the works are completed. HMRC Notice 708, chapter 24 explains the rule.

You can read the decision here: http://www.bailii.org/uk/cases/UKVAT/2004/V18689.html 

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By silverghost
02nd Nov 2019 18:34

This is an odd case, seemingly involving collaboration to decelerate VAT. Many construction projects typically involve the issue of applications for the value of work undertaken, which are then reviewed by a QS (and usually revised downwards), with either payments made net of VAT with a request for a VAT invoice to release the tax element of the payment - or paid with VAT via a self-billing invoice.

The first of these two instances ought to involve the declaration of VAT as one-sixth of the sum paid, ditto with the subsequent payment, if the VAT part is paid in a later quarter.

You would be surprised how many accountants (and auditors) do not understand how applications work.

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