VAT Reverse Charge for the Construction Industry

I know this sounds straight out of an episode of "Gladiators" from the 1990s BUT, "Businesses, are you ready?"

If you operate in the construction sector, the VAT rules change from 1st October 2019. To counter fraud in the construction sector, ‘reverse charge’ provisions are being introduced for supplies between contractors of construction services liable to VAT at either the standard or the reduced rate.

What does this mean?

For the most part, VAT registered contractors charging other contractors for construction services will no longer be required to add VAT to their invoices. Instead they will notify their contractor customer that it is the contractor customer who is liable to account for the VAT on the supply received - there is suggested narrative available for what you might say on your invoices.

Contractors working for other contractors will therefore no longer receive the VAT on the services they supply but will still be paying VAT to suppliers of plant and materials. If all your customers are other construction businesses, it may mean that you become a regular VAT refund case as you will not be collecting and having to pay over the sales VAT yourself. This may adversely impact your cashflow as you will no longer be able to ‘hold’ this money until your normal VAT payment date.

Needless to say, there is more to it than this in particular circumstances.

The questions we are starting to help businesses with, and that you should be asking your own business are:

1.       What adjustments do I need to make to my software/bookkeeping to ensure I get my invoices and VAT returns correct?

2.       How will this impact my cashflow?

3.       Do I need to be explaining this to my subcontractors?

In the weeks running up to 1st October, Richard Place Dobson will be running a workshop to help construction businesses, details will follow on the GDB website. Alternatively, contact Matthew Tyson, Managing Director at Richard Place Dobson, directly on matthew@placedobson.co.uk.