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Construction Industry Reverse Charge VAT: Q & A

Posted: May 31, 2019

Later this year changes to the VAT system will come into effect that will have an impact on many businesses operating in the construction sector. These changes will add an additional layer of complexity to the already complex system of VAT in the construction sector. Here we look in more detail at how these changes will work.

Who will these changes apply to?

These rules will apply to all construction services that would potentially be liable to be reported under the existing CIS tax deduction scheme. This potentially covers the majority of construction related services.

When do these changes take effect?

From the 1 October 2019

How will these changes work in practice?

In practical terms these changes will mean that many subcontractors will stop charging VAT on their invoices after the 1 October. The VAT on these invoices will then be dealt with using the ‘Reverse Charge’ procedure by the recipient.

Will this apply to all services?

No. There are various exceptions. The main one being that this does not apply to services provided to the ‘end user’ of the property. If a plumber installs a boiler in a property directly for the occupier they will still charge VAT as they did before.

These changes will also not apply where the services are zero rated for VAT purposes – in most cases this will be where the work relates to new build residential property.

Will businesses still be able to recover VAT on materials or overheads?

Yes. Businesses will still be able to recover VAT incurred on materials and overheads.

Are there any measures 

to simplify this new arrangement?

There are some limited simplifications – HMRC do not expect suppliers to apportion invoices when they only partially fall under these new rules.

What is likely to be the main impact for subcontractors?

Added complexity and, importantly, cash flow. At present subcontractors collect VAT on invoices and have up to four months before this is due to be paid to HMRC. Under this new regime this cash flow benefit will be lost.

 

Please contact partner and VAT specialist Tom Saltmer if you have any queries regarding these changes.