The VAT reverse charge and how it will affect the construction industry
This year could be the most challenging year yet for the construction industry, as HM Revenue and Customs (HMRC) has announced that the VAT reverse charge will commence 1 October 2019.
The Government announced in the 2017 autumn budget statement that they intended to implement a VAT reverse charge scheme.
Further to this, in November 2018, the draft order for the “VAT Reverse Charge for Construction Services” was issued under section 55A of the VAT Act 1994.
HMRC has now finalised and published the technicalities of the scheme, and the new regime is set to go live on 1 October 2019.
The new scheme will mean all VAT being paid between construction firms e.g. contractor to subcontractor and on subcontractor to subcontractor, will be reverse charged. This means that the VAT will not be paid to the subcontractor, it will be paid directly to HMRC.
This will apply to all payments made which operate under the Construction Industry Scheme (CIS). For example, a contractor who owes a subcontractor £100 plus £20 VAT will only pay the subcontractor £100 and will pay the VAT straight to HMRC.
There is a growing concern within industry bodies that the construction industry is neither ready for the logistical requirements of this change, nor the practical commercial consequences.
As a result of these changes, it is likely to impact many companies cash flow and IT accounting systems. Therefore construction firms need to start planning now, to ensure you will be ready and able to adjust when the time comes, get in touch with us today.