The government will introduce a VAT domestic reverse charge for building & construction services with effect from 1 October 2019. It will affect businesses involved in buying and selling construction services, however, it does not apply to zero-rated supplies of construction services.
The government introduced the domestic reverse charge in response to organised criminal attacks on the VAT system in the construction sector.
The reverse charge will apply through the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS) up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services - these businesses are referred to as 'end users'.
The reverse charge will exclude businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land. In these circumstances, the supplies in question will then revert to normal VAT accounting rules.
The reverse charge will include goods, where those goods are supplied with the specified services.
See below flow chart showing how a domestic reverse charge operates.
How can I improve my cash flow?
Building & Construction Service Business affected by these changes could benefit by moving onto monthly VAT returns. If your business is reclaiming input VAT on materials then you could improve cashflow if monthly VAT returns result in refunds.
For further information and guidance to see how this could affect your business, please the link to view the Guidance Notes for VAT reverse charge for building and construction services on the HM Revenue & Customs website. Alternatively, contact Mitchells Grievson Chartered Accountants and one of our account managers will be happy to talk you through the changes, call 01388 662133.