What is the construction industry reverse charge scheme?
From 1 Oct 2019 there will be a significant change in the way the vat system works for those in the construction industry due to the introduction of the reverse charge. Businesses that buy & sell construction services are likely to be affected however it will not apply to zero rated supplies of construction services.
It is being introduced as an anti fraud measure which should remove the opportunity for fraudsters to charge VAT and go missing before paying it over to HMRC.
Effectively the reverse charge is a mechanism where the customer charges themselves VAT rather than the supplier charging VAT. As the reverse charge makes it the customers responsibility to account for VAT there is no opportunity for the supplier to disappear without paying money over to HMRC.
The reverse charge will apply to business to business supplies of certain services between vat registered businesses where the recipient then makes an onward supply of the same construction services. Originally it was said to apply to labour only but HMRC state it will cover the provision of construction services which includes materials. The value of the reverse charge services received will not count towards the VAT registration threshold for the customer which is positive news for the smaller businesses.
The reverse charge will not apply to:
- Zero rated supplies
- Services that are supplied to an end user such as a property owner or directly to a main contractor that sells a newly completed building to a customer
- Circumstances where the supplier and recipient are landlord and tenant
- Circumstances where the recipient makes onward supplies of those construction services to a connected company
If you are wondering whether you’ll be affected by this or would like more information then please call us on 01782 479699 to speak with one of our construction industry tax specialists.