Important Information for those that work in the construction industry
VAT domestic reverse charge for building and construction services
The Government has published a final version of the draft legislation, in the form of a statutory instrument, which will introduce a VAT domestic reverse charge for building and construction services, with effect from 1 October 2019.
Supplies that will be affected
The domestic reverse charge will only affect supplies at the standard or reduced rates, where payments are required to be reported through the Construction Industry Scheme (CIS).
Therefore, supplies between sub-contractors and contractors, as defined by CIS, will be subject to the reverse charge, unless they are supplied to a contractor who is and end user.
End users will usually be recipients who use the building or construction services for themselves, rather than sell the services on as part of their business of providing building or construction services.
The legislation also allows for those connected to end users, including landlords or tenants, to also be treated as end users. Therefore, intra-group and leasing re-charges of building and construction services connected to the end user are also excluded from the reverse charge.
How a domestic reverse charge operates
A domestic reverse charge means that the customer receiving the supply of specified construction services must account for the VAT due, rather than the supplier. In turn, the customer deducts the VAT due on the supply as an input, meaning no net tax is payable to HMRC. This removes the scope to evade any VAT owing to HMRC.
The UK has introduced similar measures in response to criminal threats for mobile telephones, emissions allowances, gas, electricity and electronic communications. The domestic reverse charge only applies to supplies between UK taxable persons. Therefore, unless the customer is registered or liable to be registered for VAT it will not apply.
Timing and scope
The domestic reverse charge will take effect from 1 October 2019. Because it only applies to supplies where payments are reported through CIS, the supplies affected are closely aligned to those defined as construction operations under CIS.
It applies to the following building and construction services at either standard or reduced rate VAT:-
Construction, alteration, repair, extension, demolition or dismantling of buildings or structures (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, powerlines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-liners, 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.
It also applies to services which form an integral part of, or are preparatory to, or are for rendering complete, the services described in the bullet points above including site clearance, earth-moving excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.
Supplies of the following supplies are not covered by the domestic reverse charge if supplied on their own:
Drilling for, or extraction of, oil or natural gas.
Extraction (whether by underground or surface working) of minerals and tunnelling or boring, or construction of underground works, for this purpose.
Manufacture of building or engineering components or equipment, materials, plant or machinery, or delivery of any of these things to site.
Manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, draining, sanitation, water supply or fire protection, or delivery of any of these things to site.
The professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape.
The making, installation and repair of artistic works, being sculptures, murals and other works, which are wholly artistic in nature.
Sign writing and erecting, installing and repairing signboards and advertisements.
The installation of seating, blinds and shutters.
The installation of security systems, including burglar alarms, closed circuit television and public address systems.
This list is not exhaustive and if these or any other non-reverse charge supplies are supplied with supplies subject to the domestic reverse charge please refer to the mixed supplies section below.
End users are those who receive building and construction services but do not supply those services on along with other building and construction services. Under CIS rules, they are required to report their payments to HMRC because they are ‘deemed contractors’, either because they are named in the legislation or because of the amount of purchases of building and construction services they make.
Payments deemed contractors can be excepted from reporting through CIS, in which case the domestic reverse charge will not apply, and the supplier should be advised of this.
The effectiveness of the reverse charge does not depend on supplies to end users being included. However, because suppliers may be unaware, they are supplying an end user, it will be up to the end user to make the supplier aware that they are an end user and that VAT should be charged. This should be in a written form, that is clearly understood and can be retained for future reference.
If the end user does not provide its supplier with confirmation of its end user’s status, it will still be responsible for accounting for the reverse charge.
Completion of the VAT Return
Suppliers of goods or services under the domestic reverse charge must not enter in box 1 of the VAT Return. Any output tax on sales to which the domestic reverse charge applies but must enter the value of such sales in box 6.
Customers must enter in box 1 of the VAT Return. The output tax on purchases to which the domestic reverse charge applies, but must not enter the value of such purchases in box 6. They may reclaim the input tax on their domestic reverse charge purchases in box 4 of the VAT Return and include the value of the purchases in box 7, in the normal way.
Contact us on 01373 826506 or email@example.com for further help or information
Make school holidays easier with tax free child care!
Did you know there is a government scheme available that can help contribute towards childcare costs which may mean fewer of your employees will need time off at the same time this summer.
Tax-Free Childcare is a scheme available to working parents with children from 0-11 years and many parents are not taking advantage of the scheme. HMRC would thus welcome help from employers in changing that, so please tell your employees about Tax-Free Childcare and how it can reduce their childcare costs.
Eligible parents can get up to £2,000 per child, per year to spend on qualifying childcare (effectively a 25% top up). Note that Tax-Free Childcare isn’t just for everyday childcare costs, such as childminders and nurseries, parents can also use it to pay towards the cost of:
After school clubs
School holiday activities
New rules for selling a home
If you are planning to sell you main home, a holiday home, or an investment property, you need to be aware of the rule changes on the horizon.
When you sell your own home, the gain is tax free for period you lived in the property. If you move out before the property is old, the gain for that final empty period is also tax-free, as long as that is no longer than 18 months.
For sales from 6 April 2020. That final tax exempt period will be limited to nine months, with an exception for owners who have moved into residential care or are disabled, when the final 36 months of gain is exempt.
The gain made on selling an investment property will normally be fully taxable at 28%, if you are a higher rate taxpayer, or at 18% for a basic rate tax payer. However, where the property was once your main home the gain relating to the time you lived there will be exempt, plus the last 18 months, reducing to 9 months for sales from April 2020. There is also exemption for letting a former home which can amount up to £40,000 per owner. Beware for sales from April 2020 that letting exemption will only apply to periods when the property owners were also in occupation. This will effectively wipe out lettings relief for sale of investment properties, made on and after 6 April 2020.
When a share in the main home is transferred between husband and wife or between civil partners there is no tax payable on that transfer. The recipient also inherits the tax history of the property, as if they had owned their share for the same period as their spouse. This generous tax treatment will change from 6 April 2020, which may disadvantage some couples.
Digital records needed for MTD
Vat registered businesses who need to file VAT returns under the Making Tax Digital (MTD) rules, also need to keep all of their VAT records in a digital format, using accounting software or a spreadsheet.
It’s not essential to take a picture of every purchase receipt, however you do need to record these three data points:-
Date of purchase.
Net value of the purchase.
Amount of VAT to be reclaimed.
In cases where you purchase a lot of items from a supplier, you can record the totals from the supplier as a statement, rather than all of the individual purchase invoices. This helps you match your accounting records to your bank statements, where you make one payment per period to each supplier. You can only use the supplier statement totals where all the invoices on the statement fall into the same VAT period and the amount of VAT charges at each rate is recorded.
Petty cash transactions can prove to be a pain, as there often tends to be a lot of small amounts. You can record all the petty cash expenditure as a single digital record, if the total is less than £500 and each individual purchase was less than £50.
Where the purchase invoice is received digitally as a word file for PDF, you do not have to such that information into your accounting system digitally, you can retype the key details. However, once the data is within your accounting system, it needs to be digitally transferred to the VAT return via digital links, without further retyping, or by copy & paste or cut & paste. During the first 12 months of MTD, there is a relaxation of this rule.
For further help or advice on MTD, please do not hesitate to contact us.