VAT changes in the Construction Industry

With effect from 1 October 2019 HMRC has introduced a new VAT reverse charge for building and construction services.

If you work in the construction industry either as a contractor or subcontractor then you should be aware of the new rules.

The domestic reverse charge for VAT will only apply to businesses that are VAT registered and operating within the construction industry.  It will not apply if the service is zero rated or if the customer is not registered for VAT, it will also not apply to services which are supplied to end users.

Under the new rules, the customer receiving the service will be required to pay the VAT element to HMRC instead of paying the VAT to their supplier.  It sounds simple enough but due to the nature of the building sector there will be many examples where the new rules will cause difficulties, such as;

How to assess whether the customer is an end user
Changing the VAT treatment in the middle of a contract
How to complete VAT returns correctly

Businesses affected should begin checking whether the new rules will affect either their sales or purchases or both.  It will also be useful to inform suppliers and customers to avoid any misunderstandings.

The biggest issue for many construction businesses will be lost opportunity to use the VAT received on sales for a cash flow advantage, until their VAT is due to be paid to HMRC.  This is a legitimate use of funds but will be withdrawn to some extent under the new rules.

The timing of this change seems poor as it comes at the same time as Brexit challenges and the recent introduction of Making Tax Digital for VAT.

If you would like to discuss this in more detail, then please contact Gareth Botterill on 01482 862240 or email

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