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VAT: Building and Construction Services Reverse Charge – detailed guidance

by | Jun 17, 2019 | business taxation, VAT

This Content Was Last Updated on June 9, 2020 by Jessica Garbett

 

Edit – September 2019 – these measures deferred until 1 October 2019
Edit June 2020 – deferred to 1 March 2021

Further to our post last week on the Building and Construction Services Domestic Reverse Charge coming in from 1 October (the backstop date for Brexit, nice planning taxman), more detailed guidance has now been published.

View this here VAT: domestic reverse charge for building and construction services

Key points:

  • Starts 1 October 2019
  • Applies to business to business contracts broadly where CIS (Construction Industry Tax Scheme) would apply
  • Does not apply to business to consumer contracts, or business to business contracts where CIS would not apply (eg a construction firm carrying out work for a small shop)
  • Requires that the business receiving the services reverse charge themselves VAT
  • Does not apply if the business providing the services is not vat registered

This is in essence a anti fraud provision to reduce downstream vat fraud in construction.

We need to pick though the guidance in detail, and there will be anomalies to consider.   All construction businesses must review this guidance and understand it.

A few examples on how we understand this to work:

  • Construction business does work on a shop – construction business uses its own labour force – no change to current provisions
  • Construction business does work on a shop – construction business uses a non vat registered sub contractor – no change to current provisions
  • Construction business does work on a shop – construction business uses a vat registered sub contractor
    • Currently the subcontractor charges the main contractor (the construction business) VAT.  Subcontractor pays this over on their vat return.  Main contractor recovers this via their VAT return
    • From 1 October the subcontractor charges the main contractor (the construction business) VAT.  Subcontractor does not pay this over on their vat return.  Main contractor reverse charges themselves, and assuming the VAT is recoverable recovers this via their VAT return, i.e. and in and out transaction on the return.
    • If the construction business is unable to recover the VAT for any reason, eg for some reason the end contract is exempt from vat  then the construction business has to pay the reverse charged vat over

Keep an eye out for further analysis of these changes.