VAT: Domestic Reverse Change for Building and Construction Services, Presented by Julian Millinchamp

From 1st October 2019, there will be a fundamental change to the way that VAT is accounted for within the construction sector. On Wednesday 22nd May, we heard from Julian Millinchamp, the VAT Director of Hazlewoods LLP, on the background of the new regime and the latest detailed HMRC guidance.

After networking and refreshments, Julian began his presentation regarding the upcoming implementation of domestic reverse tax changes. The relevant document, issued on 20th March 2017, aims to combat missing trader fraud in the construction sector following significant losses from this type of fraud.

Domestic reverse charge is already applicable to the sale of mobile phones, wholesale gas and electricity, computer chips and wholesale telecommunications. It accounts for output tax shifted from the supplier (sub-contractor) to the recipient (contractor), so the payment of VAT is removed from the transaction.

Construction sector domestic reverse charges (CSDRC) can only apply when both the provider and purchaser of the transaction in question are VAT registered and under the CSDRC, the purchaser pays less to the supplier but more to HMRC. This can, therefore, have an impact on businesses and their “payments on account”.

Furthermore, a variety of VAT rates apply in the construction sector and it will now be the responsibility of the purchaser (contractor) to identify the correct rate. This may be problematic as it is not always easy to do so.

The stages of the legislation implementation process are as follows:

The new legislation applies as of 1st October 2019. For normal tax point rules, refer to single payment contracts. For transitional rules for applications for payment, please refer to the government website.

So, who does the CSDRC apply to? The CSDRC applies to the following:

–    B2B suppliers of building and construction services.

–    Goods and materials supplied in conjunction with construction services.

–    If there is a CSDRC element in a mixed supply, the whole supply is subject to reverse charge.

–    Any subsequent supplies on construction where the CSDRC has previously applied, providing both parties agree.

CSDRC does not apply to services supplied to an end customer, onward supplies to a connected company or zero-rated supplies.

Following the implementation of this legislation, you should consider the following actions:

–    Review supplies made to and from other VAT registered contractors.

–    Review your accounting system. Invoices must include wording to indicate that CSDRC applies. And the customer must complete a VAT return.

–    The impacts on cash flow. The supplier no longer benefits from collecting VAT from the customer in advance of paying to HMRC.

We’d like to thank Julian for a fantastic and insightful presentation, as well as all those who attended. Our next event is our annual conference, which will take place on 26th June at Gloucester Rugby Club. With live drone survey demonstrations and over 200 construction professionals in attendance, it is the perfect networking opportunity.

Though our annual conference is free, booking is essential so please reserve your place today at https://ceglos.org.uk/event/save-the-date-annual-conference-cyber-and-technology-in-construction/.