Do you know about new VAT rules for the construction industry?

Do you know about new VAT rules for the construction industry?

On the back of Making Tax Digital (MTD) comes exciting news! If you are in the construction industry you may have to deal with the domestic reverse charge arrangement from the 1 October 2019.
If you’ve never heard of MTD either you have been on another planet or your accountancy adviser is failing to keep you on top of the things that could affect your business.
MTD for VAT was implemented from 1 April this year, and if you are VAT registered and above the turnover threshold then you should be well on the way to being able to submit your VAT returns electronically using your accounting systems. If you’re not, then what you been doing? Call us quickly to see if we can help.
Your first VAT return beginning on or after the 1 April 2019 needs to be filed directly from your accounting system. You will not be able to access the HMRC website to complete your VAT return from after the end of your last return, which can straddle the 1 April 2019 deadline.

CIS Scheme

Now comes the best bit for construction contractors and sub-contractors. If you use the CIS scheme to report your payments, then this is probably for you. From the 1 October 2019 you will not need to charge VAT to your customer unless they are the end user. For the majority of suppliers working in the construction industry this isn’t likely, so chances are this will affect you, but see the latest news below.
What does this mean to you? Any services that you do for a main contractor will be invoiced without VAT and your accounting system should have a tax rate such as “reverse charge 0%” or similar which should be used. This will enter the sale in the appropriate box on your VAT return but not include any VAT to be charged.
So your VAT liability could be reduced as you could claim more from your purchases and may even result in a repayment from HMRC and/or take you out of the monthly payment regime.
However, you could be in receipt of invoices from sub-subcontractors, so they will not be including VAT on their invoices so you cannot reclaim this in your VAT return. Again, supplier invoices subject to CIS will have the reverse charge rate applied. This means no company in the chain will pay or reclaim VAT except the end user.

How will it work?

The end user will tell their supplier that they are the end user but everyone below this will be subject to the reverse charge legislation. So, the default setting is that if you are not told that someone is the end user then the reverse charge system will apply.
A latest update, thanks to our friends at Aspire Business Partnership, is that they have had it confirmed by HMRC that this will not affect umbrella or agency companies. If you, as a contractor or subcontractor, are using agency or umbrella labour supplier then this change will not apply and you will continue to receive their invoices with VAT applied.
If you need more information on this, then get in touch with us.