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HMRC Set to Bring in New VAT Rules for Construction Sector

Written by: Keith Tully

Reviewed: Wednesday 20th June, 2018

Operators within the UK’s construction sector will soon be required to account for their VAT liabilities in a different way as the government looks to make sure the industry isn’t short-changing the Treasury.Construction Site

From the autumn of 2019, builders, contractors and other businesses in trades associated with the construction sector will be impacted by legislation described as introducing a “reverse charge for construction services”.

The key implication of the rule changes will be that “the customer will be liable to account for VAT due, instead of the supplier” in the context of service supply arrangements between construction sector contractors and subcontractors, according to HMRC and a newly released draft version of its incoming legislation.

“The legislation will not apply to specified supplies made to customers who are consumers, or to those that use specified supplies to make other supplies, such as those selling new houses,” HMRC statements explain.

A process of consultation has been initiated by the government, with comments being sought from relevant parties on the proposed changes up until July 20th 2018.

However, it has already been made clear that, once in its final form, the legislation will come into effect from October 1st 2019.

Despite being described by HMRC as legislation designed to introduce a reverse charge for construction services, the new rules will impact operators within quite a wide range of different areas, including those involved in demolition or the dismantling of buildings, repair work and the creation of building extensions.

The changes will also relate to any businesses involved in the construction, alteration, repair or demolition of roadworks, powerlines, docks and harbours, industrial plants or reservoirs, as well as any other form of building.

However, the term ‘construction services’ in this context is not intended to cover anyone drilling for oil or natural gas, manufacturing parts used by builders, engineers or construction companies, or the work of architects, surveyors or property consultants.

Under the terms outlined by HMRC’s drafted legislation, a main contractor would be obliged to account for VAT in relation to services provided by a sub-contractor, with the supplier not being required to invoice for VAT.

The main contractor would then need to account for the net value of their supplier’s invoice and to deduct that VAT, in order to align their approach with the new reverse charge system.

Keith Tully

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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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