If you work in the Construction Industry Make Sure You’re Prepared for the new VAT Reverse Charge from October 2019.

With effect from October 2019 HMRC are introducing a domestic reverse charge for specified construction services made to other businesses within the construction sector.

Reverse Charge – What is it?

The reverse charge is a process whereby the customer in a transaction charges themselves VAT rather than the supplier charging them VAT.  This mechanism is mainly used to prevent missing trader fraud.  Missing trader fraud is a scheme which involves an unscrupulous supplier charging their customer VAT and then going missing before that VAT has been paid over to HMRC.

Building Contractors – How to prepare.

Businesses that supply services to other businesses in the construction sector will need to adjust how they operate going forward.

Firstly, determine whether the services you supply are the ones on the list of changes.

Secondly, if you are supplying services to other businesses in the construction sector, rather than to a consumer of those services, you will no longer need to charge VAT on your supplies as the recipient will need to account for this.  You may also be caught if you are the recipient of services, in that you will need to account for the VAT yourself rather than paying it over to your supplier.

You will need to consider how to adapt your record keeping process to deal with these changes.

Specified construction services that may be affected include:

  • 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 walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • 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
  • services which form an integral part of, or are preparatory to, or are for rendering complete, the services described above including site clearance, earthmoving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

The reverse charge only applies to certain construction services that are subject to the standard rate and reduced rate of VAT.  The reverse charge will also apply to goods supplied with those construction services.  If a supply contains a mixture of specified and other construction services it will be classed as a single supply of specified services and the domestic reverse charge will apply.

The following are not included within the definition of construction services:

  • drilling for, or extraction of, oil or natural gas
  • extraction (whether by underground or surface working) of minerals and tunnelling or
  • boring, or construction of underground works, for this purpose
  • manufacture of building or engineering components or equipment, materials, plant or
  • machinery, or delivery of any of these things to site
  • manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or delivery of any of these things to site
  • the professional work of architects or surveyors, or of consultants in building,
  • engineering, interior or exterior decoration or in the laying-out of landscape
  • the making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature
  • signwriting and erecting, installing and repairing signboards and advertisements
  • the installation of seating, blinds and shutters
  • the installation of security systems, including burglar alarms, closed circuit television and public address systems.

Additionally, supplies of specified construction services that are not used to make an onward supply of construction services will not need to be reverse charged. This means that the new rules only apply to businesses that are supplying their construction services to another business who will sell on these construction services. It does not apply where the construction services are provided to a consumer of those services (i.e. supplied to a business that has commissioned the construction of a new building). There will also be an exclusion for connected businesses. In these situations normal VAT rules will apply.

More information can be found on the www.gov.uk website.

If you require further advice on this point please contact Mitchells at: consult@mitchellsaccountants.co.uk or call us on 01246 274 121