Companies in the construction industry need to prepare for major changes to VAT collection

The domestic reverse charge, a major change to the way VAT is collected in the building and construction industry, comes into effect next month, and will have a significant impact on the accounting practices and cash flow of businesses in the construction sector.

In another move to combat fraud, as of 1st October 2019, those supplying construction services to a VAT registered customer will no longer have to account for the VAT. Instead the customer will account for it as if they had made the supply to themselves.

The new scheme only applies if the tax point date is after 1st October 2019 and will apply to specified services unless:

  • the services are supplied to an end user, such as the property owner, or directly to a main contractor that sells or lets a newly completed building
  • the recipient makes onward supplies of those construction services to a connected company
  • the recipient is not VAT registered, or required to be VAT registered
  • the recipient is not registered for the CIS
  • the supplier and recipient are landlord and tenant or vice versa, or
  • the supplies are zero-rated.

Construction businesses need to prepare for the 1st October 2019 introduction date by:

  • checking whether the reverse charge affects either your sales, purchases or both
  • making sure your accounting systems and software are updated to deal with the reverse charge and your invoices are correct and show clearly that the reverse charge is being applied
  • considering whether the change will have an impact on your cashflow
  • making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate.

For further information on this development and any other VAT issues affecting the construction industry, please give us a call on 0141 345 2335.

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