VAT reverse charge construction industry
07/11/2018

A change to the VAT rules first announced at Budget 2018 will come into effect from 1 October 2019. This change will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

This move is part of the government’s measures to combat what is known as missing trader fraud in the construction sector, where VAT due to HMRC is never paid by the subcontractor. This type of fraud has been common in other business sectors such as cross-border trading in mobile telephones, computer chips and emissions allowances.

Using the reverse charge procedure changes the usual VAT treatment so that the customer is liable to account for the VAT due rather than the supplier. This will place the onus for dealing with the VAT charge due on subcontractors’ bills to the main contractor.

The new reverse charge will be most relevant to sub-contractors and contractors carrying out supplies reported through the Construction Industry Scheme. These changes will lead to administrative changes for some 100,000 to 150,000 businesses in this sector, including many small businesses.

Adopting accounting systems to cope with this change will cause accounting rather than cash flow issues for main contractors as they will add entries to their VAT returns to reflect the subcontractors' VAT, but then deduct the equivalent amount as input VAT on the same return.

There are less than 12 months until the new rules come into effect and businesses that will be impacted, need to begin making any necessary preparations.


Newsletter Signup

With our newsletter, you automatically receive our latest news by e-mail and get access to the archive including advanced search options!

» Sign up for the newsletter
» Login

Newsfeed Search


Accreditation

ICAEW White

xeroplat

Brighton

19 New Road
Brighton
East Sussex
BN1 1UF

Tel: 01273 321526
Fax: 01273 321565
[email protected]

Rustington

2-4 Ash Lane
Rustington
Sussex
BN16 3BZ

Tel: 01903 772244
Fax: 01903 771071
[email protected]