On 1st October 2020, HMRC is changing the way VAT is collected in the building and construction industry, which could affect members of the PDA. The rollout has been moved from October 2019, giving you more time to make preparations.

The new Construction Services Domestic Reverse Charge - otherwise known as ‘Reverse VAT’ or ‘Reverse Charge VAT’ - will affect businesses that provide construction services within the scope of the Construction Industry Scheme (CIS), whereby contractors deduct money from a sub-contractor’s payments and pass it directly to HMRC.

What do I need to do to prepare for Reverse Charge VAT?

The new Reverse Charge VAT will only apply to sole traders and businesses that are registered for VAT in the UK and supply or receive specified services that are reported under the CIS, such as alterations, repairs and decorating. [Visit the HMRC website for more information on CIS].

Those that work within the scope of the CIS will need to check whether the Reverse Charge VAT will affect sales, purchases or both, and ensure that their accounting systems are updated to accommodate the changes.

For contractors, HMRC advises them to review all current contracts with sub-contractors to decide if the Reverse Charge will apply, and then notify their suppliers if it does.

Sub-contractors are advised to contact their customers to attain confirmation of whether the Reverse Charge will apply.

For help and advice for members, get in touch with us today

The new requirements under Reverse Charge VAT mean that the customer (contractor) receiving the service has to pay VAT to HMRC instead of the supplier (sub-contractor), which means that it could have a significant impact on your cash flow.

Members of the PDA are entitled to free tax advice and support, so please contact us if you need to speak to someone about understanding the new Reverse Charge VAT requirements, and whether or not this will affect your operation.

For more information on the Construction Services Domestic Reverse Charge, visit the HMRC website.