Businesses reporting under CIS and VAT registered will have to pay VAT directly to HMRC instead of to the supplier when paying invoices for services provided across the construction and building sector when the reverse charge comes into force this autumn

The reverse charge will affect individuals, sole traders and businesses registered for VAT in the UK if they supply or receive specified services and supplies at standard or reduced VAT rates that are reported under the Construction Industry Scheme (CIS). It will not apply to individual consumers or final customers of building and construction services.

There is an important difference between CIS and the reverse charge where materials are included within a service. The reverse charge applies to the whole service whereas CIS payments to net status sub-contractors are apportioned and no deductions are made on the materials content.

‘If any of the services in a supply are subject to the reverse charge, all other services (even if that service would be excluded if it were being supplied as a single service) will also be subject to it,’ the guidance stated.

The reverse charge does not apply if the service is zero rated for VAT or if the customer is not registered for VAT in the UK.

There are a number of exemptions to the reverse charge rules, including architects, surveyors, interior and exterior decoration and landscape consultants, and security system installation engineers.

Monthly returns

As a result of the reverse charge some businesses may find that, because they no longer pay the VAT on some of their sales to HMRC, they become repayment traders (their VAT Return is a net claim from HMRC instead of a net payment).

Repayment traders can apply to move to monthly returns to speed up payments due from HMRC.

The best time to move to monthly returns will depend on the business and whether they want to have monthly returns from October, or to delay a little to offset some of the VAT they owe to HMRC on periods spanning 1 October.

For example, if a customer submits a quarterly return up to 30 September 2019 and requests a change to monthly returns on 14 November 2019, October will be a monthly return and the return periods from then on will be monthly.

If the request is made in December 2019, October and November would be a 2 month return with monthly returns from then on.

HMRC Guidance, VAT: domestic reverse charge for building and construction services

This subject was part of the taxwise presentation at our AGM. This article has been prepared from a piece by Sara White Editor, Accountancy magazine and Accountancy Daily, published by Croner-i Ltd