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Construction VAT Reverse Charge – How can I prepare?

A construction site

August 12, 2019

As a specialist provider of business solutions to construction firms, we wanted to make you aware of the latest development in the industry, which could seriously affect your business.

About the VAT Reverse Charge

From 1st October 2019, there will be major changes relating to the payment of VAT in respect of building work. The new reverse charge system means that the suppliers of goods or services will no longer be involved in the payment of VAT to HMRC.

This change is designed to help tackle the issue of VAT fraud, particularly in instances where the contractor pays the sub-contractor the chargeable price plus VAT, but the subcontractor fails to account for the VAT to HMRC.

It means that the customer of the construction services will be required to account for the VAT, rather than the supplier, by showing the VAT as output tax on their tax return and reclaim it via the reverse charge mechanism.

These changes will affect construction firms that are currently covered by the CIS (Construction Industry Scheme). It only affects B2B provision of services between VAT registered businesses, where the recipient then makes an onward supply of the same construction services.


How can I prepare for the VAT Reverse Charge?

There are many ways you can prepare for the VAT Reverse Charge for Construction. HMRC recommend the following:

  • checking whether the reverse charge affects either your sales, purchases or both
  • making sure your accounting systems and software are updated to deal with the reverse charge
  • considering whether the change will have an impact on your cash flow and making plans for this
  • making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate

Contractors should also review sub-contractor contracts, to see whether the VAT reverse charge applies to the services you receive within these contracts. If it will, you should notify your suppliers immediately to put in place appropriate measures.

Sub-contractors should contact customers to gain confirmation of whether or not the reverse charge applies. This should include confirming whether the customer is the end user or intermediary supplier.

Learn more about the VAT Reverse Charge for construction, and how you can prepare, on the HMRC website, by clicking here.

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