New Vat Rules For Construction Industry Clients

2nd July 2019

The way VAT is charged on construction services will change on the 1st October 2019 as HMRC will introduce the Domestic Recharge System as part of a new anti-fraud measure in the construction labour supply sector.

The new rules however will not apply if your customer is the end user or the work is outside the scope of CIS.

The following is an example based on £1000 of standard rated work on how it will be calculated:-

You will invoice for £1000 showing your supply as standard rated but NOT adding the £200 VAT to the amount due from the customer. They will then pay the £1000 (not the £1200 as now). Their VAT return will show £1000 plus £200 VAT as both VAT payable and VAT recoverable. They will therefore gain no advantage from the change. Because you have not been paid £200 VAT by the customer, you will not owe HM Customs the £200 VAT. If you buy substantial materials used in subcontracted work, you may need to consider sending in monthly VAT returns in order to recover the VAT you have spent on materials each month, rather than wait for a quarterly repayment.

If you carry out work for end consumers, or for customers who are not VAT registered or not CIS registered, you will continue to bill them including VAT as you do currently. The new rules only affect supplies you make to firms who are not the final user of the building or structure. It will therefore be beneficial to start to keep a record of your customers VAT numbers and ask them whether they include payments they make to you on a CIS return.

Please note that if the contractors you work for do not pay VAT after 1st October 2019 there may be implications for the flow of cash in your business so you will need to check how you can manage this.

Your invoices will need to be in a format that does not add VAT to the total due. Remember this may also mean a change is needed in your accounting software, if you are unsure about this it would be advisable to discuss with a recognised bookkeeper or accountant

Should you require further information of the changes they can be found on the HMRC link below:-

www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

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