From 1st October 2019, the government will enforce a domestic VAT reverse charge for building and construction services to prevent any ‘missing trader fraud’ from occurring. This usually occurs when a supplier issues a VAT invoice and collects the VAT from their customer without declaring it to HRMC and is projected to cost the Exchequer £90m from 2019-2010.
For this reason, the new VAT reverse charge will place the onus on the customer rather than the subcontractor to account for the VAT due on certain construction services. Under the new rules, any business supplying construction services must not charge VAT on their invoices and instead, the recipient of the services must account for the VAT which is the process known as ‘reverse charge’.
Full details of the legislation can be viewed here.
When does it apply?
The new domestic reverse charge will apply to construction services where goods are supplied, such as general construction, groundwork construction, decorating of buildings and structures, renovation and maintenance, HVAC, cleaning services and painting. Exceptions include: architect services, certain supplies between landlord and tenant, zero-rated supplies and installation of security systems.
The VAT reverse charge is solely for VAT-registered businesses supplying construction services. Therefore, it does not extend to any final customers, i.e. property owners.
Using the flowchart below you can see how you would decide whether to apply normal VAT rules or apply the domestic reverse charge.