From October 2019 through to April 2020, HMRC are introducing changes to VAT and PAYE regimes that are set to significantly impact most businesses operating in the construction industry.

VAT – Domestic Reverse Charge (DRC)

From October 2019, HMRC are changing the way VAT is paid on building and construction invoices to clamp down on perceived VAT evasion in the industry, and it will affect supplies between sub-contractors and main contractors.

The VAT system currently in place means the customer pays the VAT owed directly to the supplier. This will remain unchanged for invoices supplied to end users but the new changes will mean that from October 2019, no VAT becomes payable or repayable on services in the supply chain. This will therefore impact on supplies from sub-contractors to main contractors.

The change applies to a number of building and construction services at either standard (20%) or reduced (5%) VAT rate, including, but not limited to the following:

  • Construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations.
  • Construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, powerlines, electronic communications apparatus, aircraft runways, docks and harbours.
  • Installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection.
  • Internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration.
  • Painting or decorating the internal or external surfaces of any building or structure.

It’s important to note that the introduction of DRC only applies to those reporting under the Construction Industry Scheme (CIS).

PAYE – IR35 reform

In April 2020, HMRC are reforming IR35 rules (the rules governing off-payroll working) meaning that, for many engagements, the responsibility for determining IR35 status transfers from the worker to the end-client. If it does apply, the direct engager (the entity paying the worker) will be required to deduct tax and NIC from gross payment to pay over to HMRC.

An extension of the rules is already in place for public sector employers and applies to workers providing their services via intermediaries i.e. Personal Service Companies, Agencies, Managed Service Companies etc, and this is to be to be extended to larger and medium sized business in the private sector from April 2020, affecting all payments made after 6th April 2020.

Get in touch

Our specialist VAT and Employment Tax teams have extensive experience in the construction industry, and are expertly equipped to provide further information about the upcoming changes, and help implement solutions to assure compliance and mitigate any risk you may be liable for, so please don’t not hesitate to get in touch.

Pictures from our recent Tune into Tax Seminar can be found below.