Domestic reverse charge for building & construction services
4th September 2019
By Esmée Hardwick-Slack
Another major change is coming to the construction industry this Autumn, effecting the way VAT is paid on services under the Construction Industry Scheme (CIS).
What is the domestic reverse charge?
The domestic reverse charge will change the way VAT is collected in the building and construction industry. From 1st October 2019, the customer receiving the specified service has to pay the VAT to HMRC instead of the supplier. In turn, the customer can recover the VAT, subject to the normal rules for VAT recovery.
These changes will affect you if you supply or receive specified services that are reported under CIS.
How to prepare for 1st October
You will need to prepare for the introduction date by:
- checking whether the reverse charge affects either your sales, purchases or both;
- making sure your accounting systems and software are updated to deal with the reverse charge;
- considering whether the change will have an impact on your cashflow; and
- making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate.
If you’re a contractor you’ll also need to review all your contracts with sub-contractors, to decide if the reverse charge will apply to the services you receive under your contracts. You’ll need to notify your suppliers if it will.
If you’re a sub-contractor you’ll also need to contact your customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.
How the domestic reverse charge will affect you
HMRC understands that implementing the reverse charge may cause some difficulties and will apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith.
Any errors need to be corrected as soon as possible, as the longer under-declared or overcharged sums remain outstanding the more difficult it may be to correct or recover them.
HMRC officers may assess for errors during the light touch period, but penalties will only be considered if you are deliberately taking advantage of the measure by not accounting for it correctly.
For more information on how this may affect you, please get in touch to discuss your individual situation in more detail.