Domestic Reverse Charge VAT for Building and Construction
The introduction of a new VAT measure which affects VAT registered contractor and sub-contractor businesses has been deferred for 12 months.
The measure introduces a reverse charge for certain construction services and was originally intended to be introduced on 1 October 2019.
From 1 October 2020, a VAT registered business which makes supplies of certain construction services to another VAT registered business, for onward supply, will be required to issue a VAT invoice stating that the service is subject to the domestic reverse charge and not to add VAT (but the VAT which is subject to the reverse charge must still be detailed on the invoice). The recipient must account for the VAT due on that supply and account for the VAT to Customs through its VAT Return. No VAT is paid across to the supplier. The recipient will recover the VAT as input tax, subject to normal VAT rules.
Specified construction services are those made by one VAT registered business to another who is within the Construction Industry Scheme (CIS). The recipient must intend making an onward supply of those services. Specified services are defined as construction operations for the purposes of the CIS.
The reverse charge will apply to specified services unless:
- The services are supplied directly to an end user or directly to a main contractor who is to sell or let a newly completed building,
- The recipient makes onward supplies of those construction services to a connected company,
- The supplier and/or customer is not a VAT registered business (or required to be),
- The recipient is not registered under the CIS scheme,
- The supplier and recipient are landlord and tenant (or vice versa), or
- The supplies are wholly zero rated.
Construction businesses are advised to;
- Review supplies made to and received from other VAT registered contractors to establish where these new rules may give rise to reverse charging on or after 1 October 2020.
- Obtain confirmation (in written form) from customers whether or not they are an end user, their VAT and CIS status (and VAT number if appropriate),
- Consider whether current accounting systems and software are capable of dealing with the reverse charge and, if necessary, make adaptations as necessary, and
- Consider the impact upon cash flow post 1 October 2020 and means of mitigating any adverse effects.
There are a number of detailed rules around when these rules apply and how records should be checked and maintained.
Whilst many businesses affected by this measure will already be some way down the track in terms of making themselves ready for the original implementation date of 1 October 2019, we at HSKSG will be pleased to assist any construction businesses who think they may be affected with advice on the processes and information you will need to adopt or maintain.
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