VAT & The Construction Industry Scheme

New legislation will become effective from 1st October 2019 with regards VAT on goods within the construction industry scheme ( CIS ). Construction Operations include activities undertaken within the UK and within 12 miles of its territorial waters, such as construction, alteration, repair, extension, demolition, dismantling etc.

With effect from 1st October 2019 a new VAT domestic reverse charge will apply to such supplies. Under the reverse charge rules, it will be the customer ( i.e the one making payment for the construction services ) in the transaction who will now become responsible for accounting for the VAT.

Sales to an end user ( a business that does not make supplies of construction services ) or a domestic customer will be outside the scope of the reverse charge.In addition, there is no requirement to operate the reverse charge on exempt or zero rated supplies. An end user should make the contractor aware of this fact to ensure that VAT is charged in the normal way. If the end user does not provide the supplier with confirmation of its end user status then it will still be responsible for accounting for VAT under the reverse charge. It is recommended that notification is made in writing and that these records are retained.

The supplier will be required to issue a valid VAT invoice as normal, which includes all the relevant information required. This will include the amount of VAT liable on the supply, however NO VAT is charged by the supplier. Instead, the supplier directly references the fact that the VAT reverse charge applies to the supply.

Failure to follow these rules will result in the customer having to pay over the undeclared output tax, together with penalties and interest.

As this new legislation applies to the CIS, which itself is sometimes difficult to understand, we would strongly recommend that anyone operating in the construction industry firstly ascertain whether they fall within the CIS scheme, and if they do, then they must follow the new VAT rules with effect from 1st October 2019.

 

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