From 1 October 2019, the Construction Services Domestic Reverse Charge (CSDRC) will be introduced by HMRC, in a bid to tackle VAT fraud in the construction industry. Nottingham chartered accountants Clayton & Brewill explains what you need to know about the reverse charge measure.
The new measure will mean that a person supplying certain construction industry services to a VAT-registered customer will no longer be required to account for VAT. Instead, the customer will be liable to account to HMRC for the VAT in respect of those purchases – the ‘reverse charge.’
The reverse charge will apply through the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS) up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services.
The reverse charge will exclude businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land.
Why is the measure being enforced?
From the HMRC’s perspective, the most common fraud in the building industry is missing trader fraud committed by subcontractors that provide labour for construction services.
The domestic reverse charge has been introduced as an anti-fraud measure, which removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer.
Who will be affected?
The measure will only affect supplies at the standard or reduced rates where payments are required to be reported through the Construction Industry Scheme(CIS).
These services include:
- construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations
- construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
- installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection
- internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
- painting or decorating the internal or external surfaces of any building or structure
- services which form an integral part of, or are preparatory to, or are for rendering complete, the services described in paragraphs (a) to (e), including site clearance, earthmoving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works
The charge only applies between construction businesses and will not affect purchasers of construction services that are not making an onward supply on construction services.
The exclusions include:
- Zero-rated supplies
- Certain supplies between connected companies
- Certain supplies between landlord and tenant
- Services provided by architects, surveyors and other consultants
- The manufacture of certain building or engineering equipment and components
What do you need to do?
All businesses involved in the construction industry should review supplies made to and received from other VAT registered contractors to establish whether these will be subject to a reverse charge from October 2019 and ensure that accounting and payment systems are up to date and set up to deal with the change. The impact on cash flow, contracts and invoicing should also be considered.
If you want to discuss the reverse charge in more detail, please contact our friendly team here or call us on 0115 950 3044.