What is it, and when does it take effect?
It’s the “Domestic Reverse Charge VAT for Construction Services“, and it’s meant to stamp out missing VAT from the construction industry. It comes into force from 1 October 2019.
Who does it affect?
It may affect you if you’re in the construction industry, if you’re VAT registered, and you’re invoicing for your building services, or receiving invoices from other contractors for building services.
If you’re a VAT registered contractor:
You will need to speak to your sub-contractors to see whether the reverse charge will apply to the services you receive from them. Your sub-contractor will no longer charge you VAT on their labour and materials. You will now account for your sub-contractor’s VAT on your VAT Return using the “reverse charge”. What that means is that you add your sub-contractor’s VAT onto your VAT return, and then deduct it, so you are not out of pocket. You will charge VAT to your end client as usual.
If you’re a VAT registered sub-contractor:
You will no longer charge VAT to your contractor. It is up to you to get confirmation from your customers if they’re the end user or a contractor for reverse charge VAT. You can check the VAT number of your contractor here.
If you’re the end client:
You’re the end client if you’re the property owner or developer. You shouldn’t notice any difference, as your builder (contractor) will charge you VAT on their labour and materials, as they always have.
What construction services does the reverse charge VAT apply to?
HMRC has a handy list of services affected here, which includes: Constructing, altering, repairing, extending, demolishing or dismantling buildings or structures; Pipelines, reservoirs, water mains etc; Installing heating, lighting and other systems in any building structure; Internal cleaning of buildings and structures, as part of any of the above services; Painting and decorating.
The list of services excluded can be found here, which includes: Making, installing and repairing artworks; Signwriting and erecting, installing, repairing signboards; Installing seating, blinds and shutters; Installing security systems, including CCTV, burglar alarms; Professional services of architects, surveyors and other professional consultants.
How do I record the reverse charge properly on my invoices and VAT return?
The best solution is to make sure your accounting software can handle the reverse charge VAT. We always recommend Xero, and their developers are currently working hard on getting new features ready for the reverse charge changes coming into force on 1 October 2019. So watch our blog page for updates and we will share the links to the new features in Xero ready for you to use.
There is a lot of guidance from HMRC if you would like to read the details, and of course we’re always here to help if you need more bespoke, individual advice.