Reverse Charge for Construction Services

23rd June 2018

Reverse Charge for Construction Services

New rules, due to come into force on 1st October 2019, will impact how some builders, contractors and other trades associated with the building industry conduct their VAT accounting.   Named the Reverse Charge for Construction Services (RC), the move aims to combat VAT fraud in the construction sector, which HMRC says presents a significant risk to the Exchequer. 

reverse charge for construction services

What is changing?

Under the proposal, supplies of specified standard or reduced-rated construction services between construction or building businesses will be subject to a domestic reverse charge, with the customer liable to account for VAT instead of the supplier.  It will include goods supplied with the specified services as part of a single supply.

The reverse charge will not apply to supplies made to customers that are consumers, or to those that use them to make other supplies, such as selling new houses.

Draft legislation has been produced, with final comments requested by 20thJuly 2018 to HMRC, and the aim is to publish the final version of the draft order and guidance by October 2018.

Which businesses will be affected?

Although the Reverse Charge for Construction Services scheme makes specific reference to ‘construction’ the new legislation will apply to a broad scope of services within the building trade including, but not limited to; construction; alteration; repairs; demolition; installation of heat; light; water and power systems; drainage; painting and decorating; erection of scaffolding; civil engineering works and associated site clearance, excavation, foundation works.

Business types not affected by the change will include:

  • Professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape
  • Drilling for/extraction of oil, natural gas or minerals and tunnelling or boring (or construction of underground works for this purpose)
  • Manufacture of building or engineering components or equipment, materials, plant or machinery or delivery of any of these things to site
  • Manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection or delivery of any of these things to site
  • Sign-writing and erecting, installing and repairing signboards and advertisements
  • The installation of seating, blinds and shutters or the installation of security.

&nbsp

Next steps

In addition to the technical consultation, HMRC has also engaged with trade bodies to identify wider impacts of the new scheme.  Concerns raised to date include the additional administrative burden on traders having to identify which of their customers are end users and who is liable for the Reverse Charge.   Also, some questions have been raised over the scope of the services covered within the new legislation, in particular the supply of “white goods” where VAT deduction is usually blocked.

At the moment we are recommending that businesses simply stay aware of any updates before preparing for the final legislation.  If you need to understand anything further in the meantime, please do not hesitate to contact our VAT expert team.

Chartered Accountants in Sunderland, offering expertise on everything from Tax and Business Planning,
to Accounts and VAT.