Domestic Reverse Charge VAT for Building & Construction Services

A new VAT measure has effect from 1 October 2019 which affects VAT registered contractor and sub-contractor businesses.

The measure introduces a reverse charge for certain construction services. There are no transitional arrangements – those affected must comply from 1 October onwards.

A VAT registered business which makes supplies of certain construction services to another VAT registered business, for onward supply, will be required to issue a VAT invoice stating that the service is subject to the domestic reverse charge and not to add VAT (but the VAT which is subject to the reverse charge must still be detailed on the invoice). The recipient must account for the VAT due on that supply and account for the VAT to Customs through its VAT Return. No VAT is paid across to the supplier. The recipient will recover the VAT as input tax, subject to normal VAT rules.

Specified construction services are those made by one VAT registered business to another who is within the Construction Industry Scheme (CIS). The recipient must intend making an onward supply of those services. Specified services are defined as construction operations for the purposes of the CIS.

The reverse charge will apply to specified services unless:

·         The services are supplied directly to an end user or directly to a main contractor who is to sell or let a newly completed building,

·         The recipient makes onward supplies of those construction services to a connected company,

·         The supplier and/or customer is not a VAT registered business (or required to be),

·         The recipient is not registered under the CIS scheme,

·         The supplier and recipient are landlord and tenant (or vice versa), or

·         The supplies are wholly zero rated.

Construction businesses are advised to;

1.    Review supplies made to and received from other VAT registered contractors to establish where these new rules may give rise to reverse charging on or after 1 October,

2.    Obtain confirmation (in written form) from customers whether or not they are an end user, their VAT and CIS status (and VAT number if appropriate),

3.    Consider whether current accounting systems and software are capable of dealing with the reverse charge and, if necessary, make adaptations as necessary, and

4.    Consider the impact upon cash flow post 1 October and means of mitigating any adverse effects.

There are a number of detailed rules around when these rules apply and how records should be checked and maintained. We at HSKS Greenhalgh will be pleased to assist any construction businesses who think they may be affected.

Services expert: 
Director - Taxation Services