Construction and building companies: get ready for the VAT domestic reverse charge

From 1st October 2019, VAT-registered firms who are reporting under the Construction Industry Scheme (CIS) will see a major change to the way VAT is collected. The customer recieving the service will now have to pay the VAT due to HMRC instead of paying the supplier.

What you need to do to be ready for 1st October :

• make sure your accounting systems and software are updated to deal with the reverse charge
• check whether the reverse charge affects either your sales, purchases or both
• consider whether the change will have an impact on your cashflow

Are you a contractor?

Contractors need to review all contracts with sub-contractors, to decide if the reverse charge will apply to the services you receive under your contracts. You’ll need to notify your suppliers if it will.

Are you a sub-contractor?

If you’re a sub-contractor you’ll also need to contact your customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.

How will the domestic reverse charge will affect you?

HMRC have made it clear that for the first 6 months it will apply a light touch when dealing with any errors that may occur. Therefore, penalties will only be considered if it can be seen that you are take advantage of the new measure deliberately by not accounting for it correctly.

Services affected by the domestic reverse charge

The reverse charge does not apply if the service is zero rated for VAT or if the customer is not registered for VAT in the UK.

It also does not apply to some services. Services that it does apply to are:

• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures.
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours.
• painting or decorating the inside or the external surfaces of any building or structure.
• installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure.
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration.

To see a full list of services that are included and excluded from the domestic reverse charge, please visit the gov.uk website here. You will also find more in-depth information on the website. If you need to speak to your accountant please do not hesitate to get in touch with us.