On 1 October 2019, significant changes are being introduced around the way VAT is accounted for on construction services.
Under the new rules, it will be the customer that is liable to account for VAT under the reverse charge mechanism on construction services supplied that are currently subject to VAT.
Our Head of VAT, Sarah Hughes, breaks down what you need to know:
How do the new rules apply to me?
If you currently provide services on which you apply either standard rate or reduce rate VAT and the services you provide fall under the Construction Industry Scheme (CIS) rules then the new rules will apply to you. If you only make supplies to the ‘end user’ then you won’t be caught by these new rules.
Why is it being introduced?
The new rules are being brought in to target ‘missing trader fraud’ whereby fake traders within the chain charge and collect VAT from their customer but don’t report and pay this to HMRC. The VAT is then recovered by their customer resulting in a loss to HMRC.
How might this affect my business?
The changes will affect you as either the contractor or the subcontractor. As a subcontractor you will need to verify the VAT status of customers to ensure you are correct in applying the reverse charge and as the contractor you will need to apply the reverse charge and consider the VAT status of your onward supply.
It’s been identified by the industry that one of the major impacts of the new change is on cashflow, as businesses in the sector often rely on the VAT element as a short term working capital solution.
Another issue will be around the transition rules for contracts spanning the 1 October deadline and so you’ll need to make sure any contracts you have in place reflect the changes. You may also need to consider how the changes affect any self-billing arrangements you may have with either your supplier or customer.
Finally if you are on the flat rate scheme this may no longer be beneficial and so you should consider the impact of this.
How we can help?
We can help ensure:
- your business meets the new invoicing requirements under the changes;
- invoices are recorded correctly to ensure you remain compliant under MTD.
- review the status of your customers to determine if they are deemed an end user (in which case the new rules don’t apply).
If you think your business is impacted by these changes , get in touch with our VAT team.
Want to know more? Call us on 01432 273189 or email firstname.lastname@example.org