16 December 2019
The Government’s 2018 budget introduced the Domestic Reverse VAT Charge for building and construction services. Originally scheduled to take effect in October of this year, the legislation has been delayed and will now start on 1 October 2020.
What is it?
The reverse charge is a major change to the way that VAT is collected in the building and construction industry. It will see the customer who is receiving the service paying the VAT due instead of the customer paying the supplier, as is currently the case. It will only apply to individuals or businesses registered for VAT in the UK who supply or receive specified services that are reported under the Construction Industry Scheme (CIS).
How will it work?
It will only apply to construction businesses which make a further supply of building services, and not to end users (customers). The key points are:
- The main contractor will account for the VAT on any services of a subcontractor
- The supplier (subcontractor) does not invoice for VAT
- The main contractor shows the supplier’s VAT as both output and input tax on its VAT return
In terms of the end user:
- An end user does not supply building and construction services
- An end user accounts for VAT in the usual way; normal rules apply
- The onus is on the customer to declare their end user status
- There is no change to the input VAT recovery process
Why is it being brought in?
This is an anti-fraud measure being brought in because HMRC is concerned about ‘missing trader’ VAT fraud. This is where organised criminal gangs fraudulently take over or create shell companies to ‘steal’ VAT whilst operating alongside actual construction services.
Who will be affected?
Builders, contractors and trades associated with the building industry. Construction, alteration, repairs, demolition, installation of utilities systems, erection of scaffolding, civil engineering works (including site clearance, excavation etc.). Excluded are professional services, consultancy, decoration and landscaping.
What about mixed supplies?
In terms of mixed supplies, the reverse charge applies to the whole supply but is not applicable to zero-rated supply (new builds) as it applies only to 5% and 20% rates.
For further information
Visit the gov.uk website for an overview of the new rules. If you have any queries, please call me on 091 567 8611 or email m.johnson@uhy-togersens.com.
