02 Dec 2019

Tax is always focused on in parties' manifestos during elections - how else will the parties pay for the promises that they are making to the electorate?

For the December 2019 election, this is no different.

For the Construction industry, though, tax has been something that has been discussed a lot over the last few months - even before the General Election was announced - as the construction VAT Reverse Charge was due to come into force on 1 October 2019, before being postponed at the eleventh hour to 1 October 2020 (most likely because of the lack of preparation in the industry and also anticipated Brexit by 31 October 2019, which itself was also postponed).

The postponed VAT Reverse Charge legislation changes who pays VAT to HMRC, with parties higher in the supply chain (eg contractors) retaining VAT and paying it to HMRC (instead of paying it to eg subcontractors for subcontractors to then pay on to HMRC). One of the main drivers for this legislation, from the government's point of view, is to reduce tax avoidance by construction parties further down the supply chain.

Tax avoidance is expressly mentioned in the Conservative, Labour and Liberal Democrat's 2019 manifestos:

  • the Conservatives say "we will continue to build on this to tackle tax evasion and reduce opportunities for aggressive tax avoidance" and in particular about the construction industry they say "we will set out a new anti-tax avoidance and evasion law. This will:… Introduce a new package of anti-evasion measures, including measures to end tax abuse in the construction sector..."
  • Labour simply says "we will launch the biggest ever crackdown on tax avoidance and evasion", without mentioning tax in the construction industry specifically
  • the Liberal Democrats say they will "simplify business taxation to lower administration costs – supporting smaller companies – and reduce opportunities for tax avoidance", but also without expressly mentioning the construction industry in this context.

From the construction industry's point of view, the VAT Reverse Charge legislation is already prepared and ready come into force on 1 October 2020. And so, for the party that wins the election, this legislation is likely to be a quick and easy win, enabling them to say that they have taken measures to crack down on tax avoidance in the construction industry and to say that they have ticked that box in their manifesto.

Also, in light of these manifesto promises, it seems unlikely that the VAT Reverse Charge legislation would be postponed again, and the industry should therefore continue to prepare for this to come into force in October 2020. 

Ronan Lowney, who is an expert in VAT matters, says:

"Out of a total VAT take of c. £130 billion the estimated loss of VAT from the construction sector is £80 million. Construction has historically been a prime target for tax authorities, and more particularly governments looking to be seen to counter tax fraud. Therefore, following through on a measure that is already in the pipe will be an easy win."

For more about the VAT Reverse Charge see here.