UK construction businesses are reminded to ensure they act to ensure compliance with the reverse charge.
Further to our previous story on the introduction of a domestic reverse charge mechanism to supplies of building and construction services from 1st October this year, businesses are reminded to ensure they act now to take the necessary steps to ensure compliance with the upcoming changes to their current business practices.
Aimed at reducing VAT fraud within the construction sector, the reverse charge will apply to transactions of specified services made between VAT-registered construction and building companies. Under the reverse charge, customers receiving the supply of specified construction services are liable to account for the VAT due rather than the supplier. This means, the customer deducts the VAT due on the supply as an input, so that no net tax is payable to HMRC. Therefore, the possibility of evading payment of owed VAT to HMRC is effectively removed.
Impacted supplies will be standard or reduced rate services which are required to be reported through the Construction Industry Scheme (CIS) This includes general construction, redevelopment, repairs, cleaning, painting and decorating of buildings and structures.
These supplies will not be subject to the reverse charge if they are supplied to a contractor who is an end user. End users will usually be recipients who use the building or construction services for themselves, i.e: not VAT-registered. Landlords and tenants will also be treated as end users in this case.
Businesses are advised to act now and plan for reduced cash flow as well as ensure they properly understand their supply chains and that their accounting/software systems are robust enough to manage the reverse charge requirements.
If you would like to discuss the above developments further, please do contact us for a chat.