VAT Domestic Reverse Charge – how does this affect the construction sector?

The VAT rules for property developers and investors are increasingly complex.

On 1 October 2020 new legislation aimed at tackling VAT fraud in the construction sector will come into force. The measure aims to shift liability to account for VAT on supplies of construction services to the customer rather than the supplier.

The type of supply to which the reverse charge will apply are borrowed from the meaning of ‘construction services’ in the Construction Industry Scheme (CIS) legislation, Finance Act 2004.

Who does the charge affect?

The reverse charge will affect all customers in the supply chain who receive services, which they themselves use to make an onward supply of ‘construction services’ as defined in the legislation – i.e. to the final contractor in the supply chain.

For example, a contractor receiving supplies from a sub-contractor who passes them on to their customer as part of a further supply of construction services project must reverse charge the supplies of the sub-contractor. However, the main contractor receiving supplies which it consumes in its final supply of a completed property will not.

There are exceptions, such as for certain supplies made to contractors operating in the same VAT or corporate group.

Find out more

Jonathan Main, the VAT Partner at our national association member MHA Moore and Smalley, provides an overview of the most important VAT issues to address. He concentrates in detail on the forthcoming changes intended to combat VAT fraud in the sector.

Watch the Webinar

If you are concerned about how the reverse charge will impact your business or if you have any questions, please get in contact with us on 01903 234094.