VAT changes to hit the Construction sector – prepare now!

The new VAT “domestic reverse charge”

What is happening and when?

The new VAT “domestic reverse charge” (DRC) goes live on October 1st 2020 and it is the most significant change to VAT in construction services in 30 years. From that date, sub-contractors in a CIS chain of supply will cease to collect VAT from other contractors. In its place a reverse charge system will apply. This makes the buyer of the sub-contractors service liable for VAT accounting in place of the supplier.

Why the change?

It is now widely known that HMRC are implementing the change to combat VAT ‘missing trader’ fraud in the sector which is estimated to cost the Treasury £100m per annum.

Which services will the DRC affect?

The scope of the new legislation is wide and based on the definition of “construction operations” for CIS purposes. It encompasses construction services and associated goods supplied by contractors working on the construction, alteration, repair, extension or demolition of buildings and civil engineering works.

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Original content sourced from MHA member firm MHA MacIntyre Hudson