HMRC VAT are bringing in new procedures on 1 October 2019 which affect any VAT-registered construction business that does the following:
- An organisation buys in construction services from other builders and makes an onward supply of those services to another customer.
- An organisation sells construction services to other builders where the builders make an onward supply of the services to their customer.
What is changing?
Under current rules, a builder charges VAT to their customer, collects the VAT from the customer and accounts for it their relevant VAT return.
This is changing for supplies between VAT-registered builders.
The builder will invoice their builder customer without charging VAT and the customer makes the entry instead on their own VAT return.
In effect, there will be no cash flow issue for the builder receiving services because the same amount of VAT declared in Box 1 of the VAT return will also be included as input tax in Box 4: ie a nil effect overall. This is known in VAT speak as a “reverse charge” procedure.
What is the reason for the change?
HMRC has identified that a number of builder supplies have been prone to VAT fraud, where the supplier charges VAT to his customer, receives money for this VAT from the customer but does not declare it on a VAT return. The aim of these changes is to prevent this happening by altering where the VAT is paid in the first instance.