Construction Industry VAT Reversal

Reverse charge of VAT for building and construction services

HMRC are introducing new rules from 1 October 2019 for the construction industry governing how Vat will be accounted for.

From that date, all businesses providing construction services, within the Construction Industry Scheme, will need to apply a “reverse charge” for output Vat, unless the customer is not Vat registered, an “end user”, or within certain other exclusions.

An “end user” is a customer that does not make supplies of CIS services, such as the property owner or a main contractor who sells a newly completed building to a customer.

The reverse charge will require the supplier to state on their invoice that the supply is subject to the reverse charge. The Vat on the total Vatable supplies will not be paid by the customer to the supplier and the supplier will not account for output Vat on the sales value of their services in their Vat returns. The customer will however reflect the Vat both as input and output tax in their records and Vat return, but again the reverse charge will apply to their own supplies.

Those affected should consider how these changes will impact on them both from a financial point of view, particularly cash flow, and in respect of their accounting systems.

The changes could have a particular impact for those using the flat rate scheme and for them it might be worth considering leaving the scheme to facilitate the recovery of input tax.



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REF: MC/NL/1.1