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The VAT domestic reverse charge

On 1 October, the VAT domestic reverse charge comes into effect for the building and construction
industry as part of a government clamp-down on VAT fraud.

The reverse charge does not change the VAT liability: it changes the way that VAT is accounted for.
In future the recipient of the services, rather than the supplier, will account for VAT on specified
building and construction services. This is called a ‘reverse charge’.

It is a business to business charge, applying to VAT-registered businesses where payments are
required to be reported through the Construction Industry Scheme (CIS). It will be used through the
CIS supply chain, up to the point where the recipient is no longer a business making supplies of
specified construction services. The rules refer to this as the ‘end user’.

The reverse charge means that a contractor receiving a supply of specified construction services has
to account for the output VAT due – rather than the sub-contractor supplying the services.
The contractor then also has to deduct the VAT due on the supply as input VAT, subject to the
normal rules. In most cases, no net tax on the transaction will be payable to HMRC.

The scheme is expected to operate as follows.
A VAT-registered business, receiving a supply of specified services from another VAT-registered
business, for onward sale, on or after 1 October 2019:
– should account for the output VAT on supplies received through its VAT return
– does not pay the output VAT to its supplier on supplies received from them
–  can reclaim the VAT on supplies received as input tax, subject to normal VAT rules

The supplier should issue a VAT invoice indicating the supplies are subject to the reverse charge.
An end user should notify its end user status, so the supplier can charge VAT in the usual way.
The rules are complex so it’s important to plan ahead now to get your business ready for the
changes. Contact Derek Boughton on 01295 250401 or dboughton@ellacotts.co.uk for help and
advice.

Ellacotts are running a breakfast seminar on Tuesday 10 September at 7.45am exploring the changes
and what you can do now to prepare. To book your place, please contact Alex Taylor on
alextaylor@ellacotts.co.uk.