Give us your details and we’ll be in touch asap

Insights

All Articles

Business Services

Business Tax

Personal tax

Probate and Inheritance Tax

VAT

Uncategorized

Are you affected by the new VAT reverse domestic charge rules?

By RJP LLP on 17 January, 2019

Big changes are afoot concerning the way that VAT is calculated and paid within the construction industry, which come into effect on 1 October 2019. Known as the ‘domestic reverse charge’, it means that affected companies will no longer be paid VAT for related work by their business customers.

This reverse charge will only apply where the recipient of the construction services is not the end user of them. In other words, they are buying in those services for onward sale e.g. a sub-contractor selling to a main contractor who in turn is selling those services to an end user.

The way this will work is that the supplier providing relevant construction services (together with associated building materials) for which VAT would ordinarily be payable at the standard or reduced rate, will no longer have to charge 20% / 5% VAT. Instead, the customer accounts for the output VAT and then claims the same amount back as input tax subject to the normal rules (e.g. partial exemption etc). In other words, the recipient of the construction services charges itself VAT and recovers the amount as input tax subject to any restriction on VAT recovery they may have.

 

What are the VAT charge exceptions?

There are some exclusions to this reverse charge rule such as;

  • Zero rated construction services
  • As mentioned above, relevant construction services provided to the end user of those services e.g. Mr Bloggs down the road having an extension constructed will still have to be charged 20% VAT by his VAT registered builder.
  • Relevant construction services made to connected companies
  • Supplier and recipient are landlord and tenant (or vice versa)

 

What next for VAT regulations?

HMRC have promised to release further information on these changes over the next couple of months including examples of how this will work in practice.

In making this change, the government hopes to reduce the level of missing trader VAT fraud occurring within the construction industry, where unscrupulous persons were charging VAT on construction services to their customer but then absconding with the payment before paying over this VAT to HMRC.

The whole legislation appears quite mind-boggling and we recommend that you seek expert advice from our VAT specialists to understand how you are affected.

Read more articles like this

Domestic reverse charge VAT rules are delayed until 2021

At a glance – 5 key tax changes for the 2019-20 tax year

Most valuable tax incentives across the business lifecycle

3 types of capital gains tax relief for business owners and investors

No more hiding places for those in disguise

Share this:

All Articles

Business Services

Business Tax

Personal tax

Probate and Inheritance Tax

VAT

Image

31 December 2020 - Review disposals of chargeable assets to avoid a possible CGT increase

Capital gains tax is due to be reviewed by the government and if a CGT rise is announced, the new rates may become effective from the next tax year on 6 April 2021. Take advice now if you are thinking of selling property or have other assets giving rise to a capital gains tax liability.