Under new rules due to come in on 1 October 2019, builders, sub-contractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.
The measure is designed to combat VAT fraud in the construction sector labour supply chain, which HMRC argue presents a significant tax loss. HMRC has now published further legislation to introduce the Reverse Charge for Construction Services.
Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the reverse charge a main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deducts that VAT – leaving a nil net tax position. This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.
Construction Work Affected
The reverse charge will apply to a wide range of services in the building trade, including:
- Installation of heat, light, water and power systems
- Painting and decorating
- Erection of scaffolding
- Civil engineering works and associated site clearance
- Excavation; and
- Foundation works.
Professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape are not covered by the new rules. The draft legislation sets out other work to which the reverse charge does not apply.
If you think you might be affected by these changes please contact us on 01733 371180 or email: email@example.com so we can work with you to ensure you are ready for the new system.