Wednesday September 11 2019

Construction industry to be significantly affected by VAT changes

Domestic Reverse Charge could considerably impact construction companies cash flows and accountancy procedures and has already been criticised by industry experts

Construction industry to be significantly affected by VAT changes

Companies in the construction sector whose payments are reported through the Construction Industry Scheme (CIS) are being urged to check that they are ready for changes in how they report VAT, when the Domestic Reverse VAT rules are implemented on 1 October 2020.

HMRC’s new Domestic Reverse Charge for Building and Construction Services will require the recipient rather than the supplier to account for the VAT due on a wide range of services. The aim is to reduce criminal activity on the VAT system in the industry. Similar measures have been introduced in other sectors including mobile telephones and gas & electricity.

From 1 October 2020, a VAT registered business, which provides specific construction services to another VAT registered business, that is not an end user, will be required to produce a VAT invoice stating that the services are subject to the domestic reverse charge. It is then the recipient that must account for the VAT due on that invoice through its VAT return, instead of paying the VAT amount to the supplier.

The Federation of Master Builders (FMB) has already criticised the move, describing this tax change as complex and burdensome. It believes the tax would restrict cashflow and add extra administrative burdens, which risks sending small businesses to the wall. It also considers the government’s guidance on the policy confusing and complex, which it states, wasn’t published with enough time for companies to prepare, The Goverment has in light of this postponed the date it is being introduced from 2019 to 2020.

John McCaffery, Partner at chartered accountants Alexander & Co, who specialise in advising the construction and property sector explained “Many businesses remain unsure of their obligations from 1 October 2020. The Domestic Reverse Charge will be introduced without a transitional period and has the potential to have a substantial impact on cash flow and accountancy practices for businesses in this sector.”

“Anyone that is uncertain of the new obligations should take advice now, to allow adequate time to bring in the appropriate measures and review how this will impact your business. We are being approached regularly by companies seeking advice on this subject”

Alexander & Co can be contacted on 0161 832 4841 or by email info@alexander.co.uk for further assistance or visit https://alexander.co.uk/news/domestic-reverse-charge-for-building-construction-services.

"Many businesses remain unsure of their obligations from 1 October 2020. The Domestic Reverse Charge will be introduced without a transitional period and has the potential to have a substantial impact."
John MaCaffery, Partner Alexander and Co


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