When is the reverse charge VAT in construction?

The way VAT is collected in the building and construction industry was due to change on 1 October 2019. However industry campaigners had expressed concerns that many businesses in the sector were not ready for the changes to be implemented. The Chartered Institute of Taxation (CIOT) welcomed the announcement, it had warned of “significant confusion among businesses, leading to disputes between suppliers and customers” over who is liable for paying VAT. To help those businesses prepare therefore, the Government has announced a 12-month delay meaning the new rules will now not come in to force until 1 October 2020.

What is the reverse charge VAT in construction?

In 2018, the government stated that the VAT reverse charge is “an anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer”. Apparently, VAT fraud in construction sector labour supply chains has been a real problem. The reverse charge sees the customer who gets supplies of construction services responsible for the VAT due on these supplies on their VAT return instead of the supplier.

How does the reverse charge VAT in construction work?

It applies exclusively to transactions between VAT registered contractors and subcontractors who are registered for the Construction Industry Scheme (CIS). It applies to both standard and reduced-rate VAT supplies but not to zero-rated supplies.

There are numerous exemptions, including the manufacture of components for systems of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection and the installation of seating, blinds and shutters, as well as the installation of security systems, including burglar alarms, closed circuit television and public address systems.

If any non-reverse charge supplies are supplied with supplies that are subject to the domestic reverse charge, then the whole supply is then subject to the domestic reverse charge.

What do I need to do?

Approximately 150,000 affected businesses will have to change their systems for dealing with VAT. The important thing for all affected parties in the construction industry is not to waste this additional year. WinAccs is already equipped to handle the reverse charge VAT changes for construction. So please if you are in this industry don’t put the issue on the back burner till October 2020 speak to us today to fully understand the implications of this change and how to deal with them.