VAT Reverse Charge – Construction Services

VAT Reverse Charge – Construction Services

DELAY – It has been decided that the Reverse Charge for Construction Services will now be delayed until 1 October 2020 – the below information is the original information before this delay was confirmed.

The Reverse Charge on VAT for construction services will be introduced from 1 October 2019 relating to the construction industry.

VAT paid between firms in the construction industry will be subject to the reverse charge. This means that the supplier will not pay VAT to the customer.

If this is relevant to you, you need to be ready for 1 October.

A quick explanation of how the current system of VAT works and how it will change for firms in the construction industry, invoicing other firms in the industry, from 1 October 2019.

Now –

Supplier invoices £1,000 + £200 VAT and pays over the £200 VAT to HMRC. The customer pays £1,200 to their supplier. The supplier will reclaim the £200 from HMRC on their VAT return

From 1 October –

Supplier invoices £1,000 with no VAT. The supplier will need to record on their invoice that the invoice is subject to the reverse charge. The customer will record the £200 in their VAT (as well as a deduction for £200) and therefore won’t make any payment for this VAT to HMRC.

This means that suppliers in these examples will have a cashflow disadvantage and may have VAT to reclaim rather that it being paid to HMRC – it could be worthwhile carrying out monthly VAT returns if you will be reclaiming VAT from HMRC rather than paying over to assist with cashflow.

Get in touch (01767 312 696 / if you are affected and need any guidance.

We work with many businesses & individuals within the construction industry and would be happy to take on any new clients who are looking for an innovative & proactive accountant.

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