On 1st October 2019, changes are coming for those in the construction industry as the new VAT reverse charge system is introduced. Brexit will not impact this change as it is a domestic VAT rule. So here we aim to answer some FAQs for those that will be affected.
What Is It?
The VAT reverse charge for construction is an extension of the Construction Industry Scheme and applies to transactions between contractors who are VAT registered and sub-contractors who are registered for the CIS.
Basically, contractors employing the sub-contractor for their services will be required to handle and pay the VAT to HMRC.
What If My Project Bridges The Introduction Of The Reverse Charge?
This is determined by the VAT invoice date of issue or the receipt of payment for the invoice – whichever comes first. A tax point from the 1st October onward will mean the reverse charge applies. Before that date will mean the current VAT rules are applicable to the transaction.
Who Does It Apply To?
The majority of construction contractors and sub-contractors in the UK will be affected by the change, but if you are not VAT registered the reverse charge cannot be applied to you, and the supplier will be expected to charge you the VAT and account for it as usual.
Advice – If you are NOT VAT registered, it is advised that you notify the supplier in writing.
How Can I Check If It Applies To Me?
HMRC have provided some guidance on this, and advise that the scheme will not apply to sub- contractors unless they answer yes to ALL of the following questions;
- Is your customer VAT registered?
- Are you sure the customer is not an end user?
- Will your payment be reported under the CIS?
- Is the supply standard or reduced-rate?
- Are any of the supplies you are making within the scope of the CIS?
And if it does not apply, then you should follow the normal VAT rules, by invoicing for VAT, submitting your VAT return and paying your VAT liability to HMRC.
Examples Of What Is Included
HMRC guidelines, explain that the reverse charge applies to the following, with the inclusion of any services that form an integral part of the items below, or are preparatory to them, or are for rendering them complete e.g. site clearance or earth moving excavation
- Construction, alteration, repair, extension, demolition or dismantling of buildings or structures, including offshore installations.
- 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
Examples Of What Is Exempt
HMRC have advised of services that are exempt if they are supplied on their own, here are some examples;
- Sign writing and erecting, installing and repairing signboards and advertisements.
- Drilling for, or extraction of natural gas or oil.
- Installation of security systems, including burglar alarms, CCTV, and PA systems.
- 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 lists provided here are not exhaustive and comprehensive guidelines may be found here
It would be prudent to start familiarising yourself with the guidelines and in particular what is and isn’t included in the VAT reverse charge, as it is highly likely you are already involved in projects that could be invoiced on or after the 1st October meaning that the reverse charge will apply.
Avanti work with many clients touched by CIS and whom will be affected by the reverse charge from 1st October. If you are concerned about your position or looking for advice on how to handle your VAT under the changes, please call ((08000) 388 799) our experts for a no obligation advice meeting.