Last summer we published a blog revealing that HMRC will be changing the rules around VAT for construction companies.

With reverse VAT charges coming into effect from October 2019, now is the time to familiarise yourself with the changes.

Why are the rules changing?

The new measures are being introduced in a bid to combat VAT fraud which is currently costing the UK billions of pounds every year. With £100 million a year being lost to the construction industry alone, HMRC has decided to turn its attention to this sector.

From October 2019, a reverse VAT charge will be introduced for construction services. This means that instead of a supplier being responsible for declaring and paying VAT, the customer will be responsible.

Say you own and run a firm of developers for example. Up until now, you’ve been able to hire other suppliers such as bricklayers, industrial cleaners and decorators. Historically, you would leave them in charge of declaring and paying the VAT you’ve paid them for their services.

From October however, you’ll need to charge your own business VAT for these services, and pass it on to HMRC directly.

This is being done in an attempt to combat “vanishing tradesmen” — where a supplier charges VAT for their services, but then disappears before they ever pass that over to HMRC.

Will the reverse charge affect me?

The reverse charge will only apply to supplies of specific construction services to other businesses within the construction industry. If you’re a customer paying a builder to add a conservatory to your own home for example, this isn’t something you have to worry about.

It’s also important to note that the reverse charges apply only when a business supplies its construction services to another business that will sell on those services. It doesn’t apply when construction services are supplied to a consumer. For example, if you own a shop and commission a builder to extend your shop-floor, you’re not affected. If you run a firm of shop-fitters who regularly hire tradesmen to complete projects however, you could be affected.

Which supplies are affected?

The supplies which will be affected by the reverse VAT charge include:

• The construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations
• The construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
• Installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection
• 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 internal or external surfaces of any building or structure;
• Services related to the above, including site clearance, earthmoving, excavation, tunneling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

Which supplies aren’t affected?

• Drilling for, or extraction of, oil or natural gas
• Extraction (whether by underground or surface working) of minerals and tunneling 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
• The professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape
• The making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature
• Signwriting and erecting, installing and repairing signboards and advertisements
• The installation of seating, blinds and shutters
• The installation of security

How do I prepare for reverse VAT changes?

If you supply services to other businesses within the construction industry, check the list of specified services above. If your service is listed, you might be affected which means you’ll no longer be able to charge VAT on those services from October 2019.

Making Tax Digital

Don’t forget that if your company is making £85,000+ per annum and you’re registered for VAT, you should be taking the necessary steps towards Making Tax Digital.