VAT CHANGES FOCUS
Time to take charge
HMRC’s new domestic reverse charge for construction services comes into force on 1 October 2019. But what does it mean for you? SELECT’s financial advisers offer some advice…
By Pauline Davidson VAT Associate Director – Scotland, BDO LLP
H Background
The aim of this measure is to combat missing trader fraud in the construction sector. A VAT-registered business that supplies certain construction services to another VAT-registered business for onward sale will now be required to issue a VAT invoice stating that the service is subject to the domestic reverse charge. However, it is the recipient that must
MRC has recently finalised its legislation and published more guidance on this new regime, which means the recipient rather than the supplier has
to account for the VAT due on certain construction services. The domestic reverse charge will be introduced without a transitional period and will have a significant impact on the accounting practices and cash flow of businesses in the construction sector.
account for the VAT due on that supply through their VAT return, instead of paying the VAT amount to the supplier. The recipient may recover that VAT amount as input tax, subject to the normal rules. Unlike other types of reverse charge, the value of such reverse charge services will not count towards the VAT registration threshold, which is good news for smaller businesses.
Which services will it apply to? The new domestic reverse charge will apply to supplies of ‘specified services’ between VAT-registered businesses where the recipient then makes an onward supply of those services. Specified services are generally services that are defined as construction operations for purposes of the Construction Industry Scheme (CIS).
Among those included are
construction, alteration, repair, extension, painting and decorating, plus the demolition of buildings, civil engineering and the
installation of heating, lighting
and air-conditioning. The legislation is designed so that if there is a reverse charge element in a supply then the
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whole supply will be subject to the domestic reverse charge. Where specified services have been
provided, then subsequent services on the same site by the same supplier may also be covered by the domestic reverse charge, if both parties agree. This has been introduced to speed up the decision-making process on whether the domestic reverse charge should apply. However, where the original services
did not come within scope of the domestic reverse charge but subsequent services do, then the VAT treatment changes. Businesses will need to review and monitor the VAT position throughout a project. The domestic reverse charge will apply to specified services unless: ●●The services are supplied to an end user, such as the property owner, or directly to a main contractor that sells or lets a newly completed building ●●The recipient makes onward supplies of those construction services to a connected company ●●The recipient is not VAT registered, or required to be VAT registered ●●The recipient is not registered for the CIS ●●The supplier and recipient are landlord and tenant or vice versa, or ●●The supplies are zero-rated.
An end user is a person who receives the specified services for any purpose other than making an onward supply of those services. Where the customer has not provided confirmation that they are an end user either in writing, an email, or in the contract, HMRC’s
Watch a webinar on the new regime at
bit.ly/VAT_webinar
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