The Government is introducing a VAT reverse charge on certain building and construction services. The legislation will come into effect on 1 October 2019. The legislation will present major challenges for many building contractors. Businesses involved in buying and selling construction services will need to understand the new rules.
The measure will, for certain supplies of construction services (‘specified services’), mean that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier (the ‘reverse charge’). 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 new charge does not apply to zero-rated supplies of construction services.