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2019 - Big VAT changes on the horizon for the construction industry

 

Posted on 27 June 2018

Background

Significant VAT changes for the building industry are due to come in on 1 October 2019.

The measure is designed to combat missing trader VAT fraud in construction sector labour supply chains.

HMRC has now published draft legislation and has asked for comments before 20 July 2018. It is intended a final guidance will then be published before October 2018 but it continues to work with trade bodies etc on this. The long lead in time will then give businesses time to understand how the new rules will impact them.

What does it all mean?

It will mean that 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 (‘RC’)  a main contractor (customer)  would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The main contractor accounts 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. Those that might be familiar with cross border VAT accounting should be familiar with this.

Basically it will mean that sub-contractors will not disappear owing VAT to HMRC which the customer has reclaimed from HMRC, as the sub-contractor will now not be charging VAT in the first place.

The RC only applies to other construction businesses which then use them to make a further supply of building services, and not to end users e.g. private individuals, retailers, and landlords.

Type of work affected

The RC will apply to work such as construction, alteration, repairs, demolition, installation of heat, light, water and power systems, drainage, painting and decorating, erection of scaffolding, civil engineering works and associated site clearance, excavation, foundation works. The definitions in the draft legislation have been lifted directly from the CIS legislation.

Excluded works

Some works will not be covered and invoicing for these will not change. These include professional services of architects or surveyors, or of consultants in building and engineering and many more, but the list will be clarified.

There are many concerns at this stage but it is hoped that the continued dialogue will clarify all matters and the final guidance will hopefully reflect this. 

Should you have any queries on this or on any other VAT matter please do not hesitate to contact us.

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