8 June 2018
HMRC have begun a consultation process on draft secondary legislation for a VAT reverse charge on certain services within the construction industry. This consultation is expected to last for six weeks. The final version of the legislation will be published in October 2018, and is intended to come into effect on 1 October 2019. The measure will, for certain supplies of construction services, known as ‘specified 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 mechanism will apply through the supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services. It will also include goods where those goods are supplied with specified services.
There are some exceptions to the new rules. If a business supplies specified services to:
- A connected party within a corporate group structure, they will be excluded from the new rules and must continue to account for VAT using normal accounting rules
- A business that is not a construction business, for example a shop, public house, etc. the reverse charge rules will not apply.
Another point to make is that these rules will have no impact on zero rated construction services.
Specified services are defined as follows:
- construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations;
- construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
- installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection;
- internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
- painting or decorating the internal or external surfaces of any building or structure;
- services which form an integral part of, or are preparatory to, or are for rendering complete, the services described in paragraphs (a) to (e), including site clearance, earthmoving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.
As mentioned above, this is only due to come into effect in October 2019. If you make ‘specified supplies’ to other construction companies and have any questions regarding your business, please get in touch. For more information about this topic please contact me or your usual UHY adviser.