From 2019 HMRC plans to introduce new rules for VAT accounting for  some builders, contractors and other trades associated with the building industry. Read this Right Accounts article and find out what’s going to change and how to get ready.

What’s new?

The new legislation is called the Reverse Charge for Construction Services (RC) and is aimed at VAT-registered businesses operating in the supply chain of construction and building services.

Under the new rules, VAT on the services will be accounted to the main contractor (the receiver of the services) and not the subcontractor (the supplier), as it has been the case until now.

The main contractor will then account for VAT on the net value of the supplier’s invoice and deduct that VAT which will result in a nil net tax position.

Which services will be affected?

The new rules will be applied widely to the services in the building trade and will include the following works (the list might be extended):  

• Construction
• Alteration
• Repairs
• Demolition
• Installation of heat
• Light
• Water and power systems
• Drainage
• Painting and decorating
• Erection of scaffolding
• Civil engineering
• Associated site clearance, excavation, foundation works

Which services will not be affected?

For the following services the invoicing procedures will not change:

• 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, or 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
• signwriting and erecting, installing and repairing signboards and advertisements
• the installation of seating, blinds and shutters or the installation of security

Implications

• Suppliers who used to include VAT in their cash flow projections will have to make adjustments
• Suppliers will become responsible for identifying customers who are liable for the RC (checking VAT registration numbers, checking if a customer is an ‘end user’ or not) and invoicing them correctly
• Contractors will have to make sure that they apply the RC correctly

What’s next?

HMRC has published draft legislation, a draft explanatory memorandum, a draft tax information and impact note and is collecting feedback until the 20th July, 2018.

The final draft version is to be published before October 2018 and the implementation will start 1st October, 2019.

Such timeline gives time the affected businesses to make the necessary changes. However, knowing that it’s going to be a period in which businesses will be dealing with Brexit and Making Tax Digital, it would be wise to start preparing for the change beforehand.

If you need help with this new legislation or require more information, know that Right Accounts is only one call away. Get in touch!

Our contacts: https://www.right-accounts.co.uk/p/contact