VAT Changes For Subcontractors In Construction Industry
From 1 March 2020, contractors who employ subcontractors, will need to assume responsibility for declaring and paying the VAT that was previously settled by their VAT registered subcontractors.
The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.
Guidance on the workings of the domestic reverse charge (referred to as the reverse charge) has been published by HMRC. The reverse charge will affect certain specified supplies of building and construction services supplied at the standard or reduced rates that are reported under the Construction Industry Scheme (CIS). This will place the onus for dealing with the VAT charge due on subcontractors’ bills, on the main contractor.
There are now less than 5 months until the new rules come into effect and you should ensure that your construction clients are making the necessary preparations.
Affected construction clients should:
- make sure their accounting systems and software can deal with the reverse charge
- consider whether the change will impact their cash flow
- make sure all their staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work
You must use the reverse charge for the following services:
- constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
- constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
- internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
- painting or decorating the inside or the external surfaces of any building or structure
- services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works
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