Background
HM Revenue & Customs (HMRC) are introducing new VAT procedures for construction services with effect from 1 October 2019. A VAT reverse charge on certain building and construction services will apply from 1 October 2019, and this will see a major change in the way VAT is collected in the industry.
With effect from 1 October 2019, the rules will change between VAT-registered construction businesses. Under the new rules responsibility for the charging VAT on a transaction and paying into over to HMRC will pass up the supply chain, from the supplier to the customer.
Detail
Currently a contractor will charge VAT to their customer, collect the VAT from the customer and then record it in Box 1 on their VAT return.
Under the changes, from 1 October 2019 when the reverse charge applies to a transaction, the supplier will not charge VAT, and will not receive a VAT payment, and therefore will not pay VAT to HMRC on that particular transaction. Instead it will be the customer who will pay the VAT due to HMRC as part of their normal VAT return. The customer will then be eligible to recover the VAT under the normal input tax and partial exemption rules
The effect overall for the customer will be often be nil, since the output VAT declared in Box 1 will be the same as the input tax they enter in Box 4. This is referred to as the “reverse charge” procedure.
This is very much an overview and the changes are significant, therefore if you have any concerns or would like further information in regard to these VAT changes described above, please contact our Tax Director, Jenny Marks.
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