If you work in the construction industry there VAT change you need to know, which is due to take effect from October 2019. HM Revenue and Customs has introduced the Domestic Reverse Charge (DRC) as part of new anti-fraud rules to combat VAT fraud in construction sector labour supply chains. Builders, sub- contractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.
Important facts about the new rule and what
Under the new rules, supplies of standard or reduced-rated building services between VAT registered businesses in the supply chain will not be invoiced in the normal way.
The main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deduct that VAT from the payment to the sub-contractor.
This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.
Reverse charge accounting is where the recipient of the services must self-account for VAT on the services received, rather than the supplying charging VAT on the services provided.
What Services are included and excluded?
The Domestic Reverse Charge will include the following:
- repairs and alterations,
- painting and decorating,
- the installation of heating, lighting, water and power.
- It will also affect civil engineering, site clearance, excavation and foundations works.
The following services are excluded, where will be no change in the way invoicing works for the
- installation of seating,
- shutters and
- security systems.
Also, the professional services of architects or surveyors and consultants of building and engineering, will not be affected although the definitive list is yet to be clarified.
When does this change take place
This new rule Domestic Reverse Charge (DRC) will be applied on the 1st October 2019. Note that normal VAT invoices will continue to be issued to domestic customers.