Analysing the changes to VAT and construction

Published on 23rd August 2019

A major change in the way that VAT is accounted for in the building and construction sector takes effect later this year.

The VAT domestic reverse charge for building and construction services will apply from 1 October 2019, impacting invoicing and VAT return procedures. This means, any VAT-registered recipient of services accounts for VAT, rather than the supplier.

The Charge

The charge affects VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS). It will be  used along the supply chain, until the recipient is no longer a VAT-registered business making an onward supply of specified construction services. This is an ‘end user’. The reverse charge will not affect zero-rated supplies, services provided to end users, or in some circumstances to ‘intermediary suppliers that are connected or linked to end users, for example landlords and tenants.

The Reverse Charge

The reverse charge covers ‘specified services’ – essentially, construction services as defined for CIS purposes. Where services – such as those of architects, surveyors and some consultants – are supplied on their own, they are not covered by the reverse charge. If provided along with supplies subject to the charge, however, the whole supply will be subject to the charge. The reverse charge also includes goods, where they are supplied with specified services.

HMRC has issued technical guidance: bit.ly/2WHQ5R2, and we recommend planning for change now – for example, by adapting accounting and IT systems to cope. You may also need to consider the impact that the reverse charge will have on business cashflow.

Please don’t hesitate to contact us for further advice.