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Posted 26th February 2019

Reverse charge VAT is coming to the construction industry. Are you ready?

The way VAT is collected is changing for the construction industry.  The change will come into force on 1st October 2019 but many people are still unaware of the changes and how they will affect them.

The main concern for those in the construction industry is that the changes could have an impact on cashflow.  Contractors and construction businesses should be starting to prepare.  Those that haven’t planned ahead and aren’t ready for the change could find themselves struggling with their systems and cashflow.

VAT reverse scheme

The change is coming in as part of a move by HMRC to tackle what is known as “missing trader fraud.”  There is already a similar reverse charge system in place in other industries such as the sale of mobile phones and computer chips.

Once the changes come into force VAT cash won’t be exchanged within the supply chain in the way that it is currently. VAT registered businesses in the construction sector will issue a VAT invoice for their services which states that their service is subject to the VAT reverse charge. Essentially the VAT will be calculated as a paper exercise and will only be charged by the business at the top of the supply chain.

The concern at the moment is that the changes haven’t necessarily be widely publicised and many in the construction industry haven’t started to prepare.  Contractors, small and medium construction businesses and recruitment agencies operating in the construction sector will all need to consider if the change will have an impact on them and will need to look at their accounting systems to ensure they are ready for October.

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

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