New VAT Rules for the Building Trade in 2019
Under new rules due to come in on 1 October 2019, builders, subcontractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.
The measure is designed to combat VAT fraud in the construction sector labour supply chain, which HMRC argue presents a significant tax loss. HMRC has now published draft legislation to introduce the Reverse Charge for Construction Services.
Under the proposed new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the reverse charge, the main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deducts that VAT, leaving a nil net tax position. This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.
Construction Work Affected
The reverse charge will apply to a wide range of services in the building trade, including:
- Installation of heat, light, water and power systems
- Painting and decorating
- Erection of scaffolding
- Civil engineering works and associated site clearance
- Foundation works
The definitions have been lifted directly from the CIS legislation.
Professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape are not covered by the new rules. The draft legislation sets out other work to which the reverse charge does not apply.
It is hoped that the legislation and guidance will be finalised by October 2018 to allow businesses at least 12 months in which to make the necessary changes to systems.
If you have any questions or would like to discuss this in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Construction and Real Estate team.
This article originally appeared on the blog of our member firm, MHA Carpenter Box.