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VAT experts prepare the construction sector for looming changes

VAT specialists at PKF Francis Clark are urging those in the construction sector to prepare for the significant VAT changes that are being introduced this autumn, which will alter the way that VAT is collected for many taxpayers. These changes come into place as HMRC implement measures to tackle and crack down on VAT fraud in supply chains.

The VAT domestic reverse charge, known as the reverse charge, for building and construction services is being introduced from 1 October 2019 and will mean that customers receiving ‘specified supplies’ will now have to account for VAT, instead of paying it to the supplier. Going forward, the supplier of specified services will not charge VAT on their sales invoices and instead the customer will be responsible for accounting for the VAT. The reverse charge prevents suppliers charging VAT to their customers but not paying it over to HMRC.

Under the reverse charge, the customer can recover the VAT, subject to the normal rules for VAT recovery. For most businesses this is likely to result in a nil net effect on the customer’s VAT return since they will be accounting for the VAT and recovering the same amount on their VAT return.

It is important to note that the reverse charge will only apply to businesses registered for VAT in the UK that supply ‘specified services’ that are reported under the construction industry scheme (CIS). Supplies to an ‘end user’ will not be covered by the changes and VAT should be charged in the normal way. End users will usually be those customers who use the building or construction services for themselves, rather than sell the services on as part of their business’ activities.  Cash flow could be impacted for some taxpayers who may want to consider switching to monthly VAT returns.

Julie Towers, Head of VAT at PKF Francis Clark said: “We are working alongside businesses of all sizes in the construction sector to ensure that they are equipped for this change.  We are recommending that our clients check whether the reverse charge affects their sales, purchases or both. This includes ensuring that their accounting systems and software are capable of dealing with the reverse charge and the new invoicing requirements. We are encouraging clients to contact their customers and suppliers to agree the impact of the changes with them”. The news of these changes has left many businesses with questions about how to implement the new rules. To assist, specialists from the South West’s largest VAT team at PKF Francis Clark have produced an information pack, including an FAQ factsheet. This aims to help taxpayers determine if and how these changes will affect them, with further guidance on compliance issues and what they may need to consider with on-going and new contracts.