15th August 2019
In a bid to tackle fraud in the construction industry, HMRC are introducing the “VAT domestic reverse charge”, due to take effect from 1st October 2019. This reverse charge will affect VAT registered businesses that operate under the Construction Industry Scheme (CIS).
Currently, output VAT is charged by suppliers on their services and reclaimed by VAT registered business users. Under the reverse charge, VAT will no longer flow between businesses. While suppliers must state that VAT is subject to a reverse charge on their invoices. The VAT registered business users will then account for both the output and input VAT on their VAT return, resulting in a net nil position.
The charge will only affect standard or reduced rate VAT supplies which are reportable under the Construction Industry Scheme.
Affected businesses will need to consider how to make the entries in their accounting software and the affect on cash flow. Businesses reporting under the flat rate scheme for VAT may need to consider whether to move to the standard scheme before 1st October 2019.
We will keep you updated if there are any changes to this HMRC proposal. In the meantime, please don’t hesitate to contact our offices for more information on this development.