VAT Changes ahead for the building and construction industries
From 1 October 2020, the Government will be changing the way that VAT is going to be collected in the building and construction industry – with the customer paying the VAT directly to HMRC, rather than to the supplier. This is known as the “domestic reverse charge”.
Who will it affect?
Any VAT registered business reporting through the Construction Industry Scheme (CIS) supplying services that are subject to standard and reduced rate VAT will be affected. It will also include goods, where these are supplied under a single contract for the supply of specific services. More information can be found here: https://www.gov.uk/what-is-the-construction-industry-scheme
Are there any exceptions?
The domestic reverse charge will not apply in certain instances, such as:
- If the service is zero rated for VAT
- If the customer is not registered for VAT in the UK
- If the service is supplied directly to the end user (or intermediaries connected with the end user)
- Employment businesses who supply staff and pay the temporary workers are exempt
- Certain services are also exempt, including installing security systems, installing artworks, extracting oil and minerals, manufacturing building components - and many more
What do you need to do?
You will need to plan ahead to ensure that the new system is implemented correctly, including:
- Checking whether the domestic reverse charge will affect your sales, your purchases (or both)
- Contacting your clients and suppliers
- Making sure your accounting systems are updated to deal with this
- Reviewing your cashflow forecast as this could have a potential impact where VAT is no longer charged but may have previously been used to fund working capital
- Verifying the VAT status of your customers
- Verifying the CIS registration of new customers
What can we do to help?
This is a significant change that has many factors and considerations to take into account. There are further complications for businesses that have large numbers of contracts using sub-contractors over several sites, as it can be difficult to establish whether this charge applies. It is also possible that the VAT treatment may change over the course of a contract.
We have our own dedicated tax consultancy team who are on hand to advise and support our clients through this process. It’s important to get it right from the start as incorrect information submitted to HMRC can have a massive impact on your organisation’s finances.
Click here to find out more about our tax consultancy service.