Preparing for the VAT reverse charge

If you are a contractor working in the construction industry then you are probably already aware of the impending changes to VAT within the industry.  The domestic reverse charge for construction services is being introduced in an attempt to combat missing trader fraud.  The change will have an impact on all VAT-registered construction businesses supplying construction goods and services to non-consumers.

Here’s what you need to know to prepare for the changes.

• The changes come into force from 1^st October 2019.
• It applies to both standard and reduced-rate VAT supplies.
• It doesn’t apply to zero-rated supplies.
• If a project started before the 1^st October the reverse charge will apply to any invoices dated 1^st October onwards. If the tax point is prior to that date then existing VAT rules will apply.
• All VAT-registered construction businesses supplying construction goods and services to non-consumers will be affected.

How will it work?

In simple terms VAT cash won’t be exchanged within the supply chain in the way that it is currently. Companies will still issue a VAT invoice for their services but the invoice will state that their service is subject to the VAT reverse charge. The VAT for each job will still be calculated but only as a paper exercise.  VAT will then only actually be charged by the end-consumer or business at the top of the supply chain.

Businesses and contractors who are affected need to make sure that their accounting systems and software have the capacity to deal with the change.  Staff should be informed and will need to be familiar with the reverse charge and how it operates before the changes come into force.  If you haven’t already now is the time to work out how you will manage the change.

A concern for many contractors and small businesses is the impact it could have on cashflow so this is something to consider and plan for now before it is too late.

Now is the time to review contracts and decide if the reverse charge will apply or as a sub-contractor to contact your client/s and clarify if the reverse charge will apply and what their position is in the supply chain.

If you have questions about the VAT reverse charge for the construction industry then get in touch, we’ll be happy to discuss your circumstances and how the changes could impact you.

Please note that since this article was published the change has been delayed until October 2020.  For news on the delay see here.