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VAT reverse charge on building and construction services

by | Aug 19, 2019 | ACCA, 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 – now deferred to 1 March 2021

We’ve already briefed on this, but the issue bears repeating, and this guide from ACCA In Practice will be helpful

VAT reverse charge comes into effect on 1 October 2019. It is major change to the way VAT is collected in the building and construction industry. From this date the customer receiving the service will have to pay the VAT due to HMRC instead of paying the supplier. It will only apply to individuals or businesses, who are not consumers, registered for VAT in the UK.

 Actions to take

  1. use HMRC’s flowchart to determine whether it is applicable to your business or not
  2. once established which VAT rule applies to your client, you may advise your client how it impacts their business and what steps to take
  3. as the liability of paying VAT will be moved from supplier of the services to the customer, some of the clients may end up being repayment traders. It may help them to go on the monthly returns instead of quarterly returns to speed up their VAT refund for cash flow improvement.

 

HMRC guidance highlights ‘the best time to move to monthly returns will depend on the business and whether they want to have monthly returns from October, or to delay a little to offset some of the VAT they owe to HMRC on periods spanning 1 October.

For example, if a customer submits a quarterly return up to 30 September 2019 and requests a change to monthly returns on 14 November 2019, October will be a monthly return and the return periods from then on will be monthly.

If the request is made in December 2019, October and November would be a two month return with monthly returns from then on.

  1. reverse charge supplies are not to be accounted for under the Flat Rate Scheme. Therefore, users of the scheme will have to consider if it is still beneficial to them when VAT is not being paid to them on some or all of the invoices they issue. Flat Rate Scheme users who receive reverse charge supplies will have to account for the VAT due to HMRC
  2. the Cash Accounting Scheme cannot be used for the supply of services that are subject to the reverse charge. You can still use the Cash Accounting Scheme for supplies that are not within the reverse charge. However, you’ll have to use cash accounting for your purchases so you may find that the Cash Accounting Scheme no longer helps your cash flow. If this is the case, you can withdraw from the scheme.

ACCA published an article in June 2019 which provides further related guidance.

Article from ACCA In Practice