VAT changes for companies in the construction industry, due take effect this month, have been delayed for another year. HM Revenue and Customs introduced the Domestic Reverse Charge (DRC) as part of new anti-fraud rules to combat VAT fraud in construction sector labour supply chains.
What were the main reasons for the uturn
The main reasons for government postponing changes to VAT in the construction sector are:
- Lack of awareness of the change (originally due to start on 1 October 2019). Many sub-contractors, and some main contractors, were not prepared for the changes, on top of getting to grips with Making Tax Digital for VAT.
- It came to light that some sub-contractors using the VAT flat rate scheme would be worse off, thus needing extra work to review of whether that scheme is still worthwhile for them.
- UK’s potential exit from the EU
Consequently, the government have decided to delay the start of the new rules for 12 months.
What was the change all about?
The changes were called the (DRC) Domestic Reverse Charge.
The domestic reverse charge (referred to as the reverse charge). This is entailed the recipient of the services self-accounting for VAT on the services received, rather than the supplier charging VAT on the services provided
Who will be affected by these VAT changes?
You are affected by the changes (now postponed for a year) if you supply or receive specified services that are reported under the Construction Industry Scheme (CIS)
The charge will only apply if:
- both supplier and customer are VAT registered;
- the standard or reduced rate applies to the supply; and
- payment for the supply is required to be reported to HMRC through the CIS.
Will not apply where:
- the supply is zero-rated e.g. construction of a new residential building;
- the customer is an “end user” i.e. a recipient who uses the building or construction services for themselves, rather than selling the services on as part of their own business; or
- the supply is made to an intermediary and the intermediary is connected with the expected end user e.g. if it is the end user’s parent or subsidiary
The new procedures are being introduced on 1 October 2020. For more information please call Alan Patient and Co on 020 8532 9843