Government consults on construction supplies VAT reverse charge scheme

HM Revenue & Customs (HMRC) may introduce a VAT reverse charge for supplies of construction services to businesses from October 2019.

The measure was announced in a recent consultation in an effort to tackle fraud in construction industry supply chains.

A VAT reverse charge is a method of accounting for VAT on services that you buy from businesses based overseas.

The charge is the amount of VAT you would have paid on supplies or services if you had bought it in the UK.

You must add that amount to the total of VAT you are going to pay HMRC that quarter, as well as the amount of VAT you are going to reclaim during the same period.

In essence, a business will pay no more or no less VAT, but moves the burden of responsibility for recording a VAT transaction from the seller to the buyer.

The construction supplies and services to potentially come under this umbrella include:

  • construction, alteration, repair, extension, demolition or dismantling of buildings or structures;
  • installation of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection;
  • internal cleaning of buildings;
  • painting or decorating internal or external surfaces; and
  • services integral, or preparatory, to the above.

For more information on the reverse charge scheme, please click here.