Changes to VAT proposed for the construction sector

13 Jun 2018

aerial view builders

HMRC has released the draft law and guidance on the proposed changes to VAT accounting for the construction sector. The new rules are to take effect from 1 October 2019. From this date, in certain circumstances, the customer will be required to account for VAT on services received, rather than the supplier charging VAT and issuing a VAT invoice.

The actual VAT chargeable and recoverable will not be affected by the changes, but the party responsible for accounting for the VAT will change. The reason is that the government believes that there is a significant level of fraud in the sector with traders in the supply chain going “missing” without paying the VAT due to HM Revenue & Customs. As VAT will be self-accounted for in the future, the risk in the construction sector should be managed.

Sean McGinness, VAT director, comments:

“Businesses involved in the construction industry will need to identify whether accounting changes will be required. In conjunction with the proposed introduction of Making Tax Digital for VAT in April 2019, this adds another VAT issue for finance, tax and IT teams to deal with over the next 12 months.

“Not all construction services are affected by the rule change, as it is only services that are bought in and used by the customer to on-supply construction services that fall under the new law. Further, the proposal aligns the categories of expenditure that are affected with the Construction Industry Scheme (CIS). This means that developers and housebuilders need to understand their role in each supply chain to establish whether they are required to self-account for VAT or whether VAT should be charged by the supplier. We would recommend that CIS procedures are reviewed at the same time.”

Saffery Champness is advising clients in this area and providing assistance with mapping supply chains, documenting process and providing guidance to businesses on how the changes should be handled.