VAT changes for the construction industry

VAT changes for the construction industry

From October 1st 2019, companies registered with the CIS (Construction Industry Scheme) will not be able to put VAT on their invoices when sub-contracting for main contractors – who will now be responsible for paying the VAT on the overall job.

Under the Construction Industry Scheme (CIS), main contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC). The deductions count as advance payments towards the subcontractor’s tax and National Insurance. This could affect cash flow if for example you are carrying out a refurbishment and pay VAT on your supplies and will not be able to claim back within the usual time frame.

The measure is being introduced to counter fraud in the industry and is referred to as a VAT ‘reverse charge’. It applies to certain building and construction services and will mean that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier (the ‘reverse charge’).

The ‘reverse charge’ will apply through the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS) up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services – these businesses are referred to as ‘end users’.

The ‘reverse charge’ will exclude businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land. In these circumstances, the supplies in question will then revert to normal VAT accounting rules.

The ‘reverse charge’ will include goods, where those goods are supplied with the specified services.

To be in the CIS, subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if you are not registered. Main Contractors do need to register.

To find out more about the VAT changes please visit: https://www.gov.uk/government/publications/vat-reverse-charge-for-building-and-construction-services/vat-reverse-charge-for-building-and-construction-services

To find out more about the Construction Industry Scheme and register please visit: https://www.gov.uk/what-is-the-construction-industry-scheme