Are you prepared for the new VAT reverse charge for the construction industry?
It could be a very challenging year for the construction industry from a VAT perspective. New reverse charge rules are being brought in with the result that it will become the responsibility of the suppliers of construction services to account for the VAT that would have previously been charged by their subcontractors.
The aim of the measures is to combat fraud in the sector as HMRC feel that many sub-contractors fail to pay the VAT they collect from their customers. The new rules will start on 1 October 2019.
There are a number of businesses that will not be impacted by the changes. Most notably, the reverse charge will not need to be made by ‘End Users’. Instead, contractors making supplies to ‘End Users’ will charge VAT in the traditional way. ‘End Users’ are customers that receive the supplies of construction but do not make an onward supply of construction services themselves (developers may be an example).
However, there are concerns from a VAT perspective on the reverse charge, for example, how a contractor can determine that its customer is an ‘End User’ for the purposes of the scheme and the responsibility of ‘End Users’ to declare their status.
In addition, the rules concerning the VAT liability of construction services are complex and will now effectively be determined for the entire supply chain of contractors by the contractor providing the services to the eventual ‘End User’. Many commentators have also voiced a concern that contractors will lose the cash flow advantage gained from being paid before having to account for VAT on a VAT return.
From an accounting and business perspective, the issues are perhaps more practical in terms of changing accounting systems so that sub-contractors do not account for VAT, and the contractor’s systems account for the reverse charge.
Bearing in mind that this is being introduced fairly soon after Making Tax Digital and with the upheaval of Brexit, it would be wise for firms in the construction sector to start planning now, to ensure they will be ready for when the new rules come into force.
At AGS, our expert team is on hand to ensure that your business is prepared for the new VAT reverse charge. Contact us today for more information.