Construction Industry Scheme Changes for Reverse Charge VAT

Construction Industry Scheme Changes for Reverse Charge VAT

14 August 2019

The new domestic Reverse Charge is a major change to the way VAT is collected in the building and construction industry and will apply to supplies of specified services from 1st October 2019.

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A VAT-registered business supplying certain construction services to another VAT-registered business for onward sale will need to issue a VAT invoice stating the service is subject to the domestic reverse charge.

The recipient of this invoice must pay the VAT due on that supply through its VAT return, instead of paying the VAT amount to the supplier.  The recipient may then recover the VAT as input tax, subject to the normal rules.

The reverse charge applies only to individuals or businesses registered for VAT in the UK and will not apply to consumers.

The construction services covered by this charge are: construction, alteration, repair, extension, painting and decorating, demolition, civil engineering and the installation of heating, lighting and air conditioning.

The good news for small businesses is that the value of such reverse charge services will not count toward the VAT registration threshold, however, those that rely on VAT collected from customers as working capital until they have to remit it to HMRC are likely to suffer from the loss of cashflow.

What should you do now?

We would advise construction businesses to:

  • Review supplies provided to, and received from, other VAT registered contractors to see if these will be subject to a reverse charge from 1st October 2019.
  • Obtain notification from customers regarding their VAT registration status, CIS status and confirmation that they are the end user.
  • Consider any adaptations required to ensure accounting systems can deal with the change.
  • Reflect on the negative effect on cashflow from 1st October and ways to mitigate it.

If you have any questions about CIS and the reverse charge for VAT please give us a call.  We can help you navigate the complexities and keep you compliant with HMRC.

For further reading:

Daly Park’s leaflet “Construction Industry Scheme and upcoming changes for reverse charge VAT: https://www.dalypark.com/download/files/20190805%20CIS%20Reverse%20Charge.pdf

HMRC Guidance - VAT: domestic reverse charge for building and construction services:

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

KEYWORD TAGS: CIS VAT

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