VAT reverse charge

Value Added Tax (VAT) is a tax added to the cost of certain goods and services. It is only accountable where the party raising an invoice is VAT-registered. Parties must register if their VAT-able turnover exceeds a minimum threshold in any 12-month period.

From October 2019, a domestic VAT reverse charge will come into effect to tackle fraud in the construction industry. A reverse charge enables a customer to charge themselves VAT rather than the supplier charging it. This removes any opportunity for the supplier not to pay HMRC (missing trader fraud).

The reverse charge will apply to businesses that supply services to another business that will then sell on that service, but not those that supply services to consumers.

Sometimes referred to as the domestic reverse charge is intended to apply only to supplies of specified construction services which are subject to the standard and reduced rate of VAT, which include:

• Construction, alteration, repair, extension, demolition or dismantling of buildings, structures, non-permanent structures, offshore installations, works forming part of land (i.e. walls, runways, docks, railways, pipelines, etc.).
• Installation of systems such as heating, lighting, air-conditioning, ventilation, drainage, and so on.
• Internal cleaning of buildings and structures.
• Painting and decorating.
• Services which are an integral part of preparing or completing those above (e.g. site clearance, excavation, scaffolding erection, landscaping, and so on).

Services and supplies that will be excluded from the reverse charge include:

• Drilling and extraction of oil, natural gas, and minerals.
• Tunnelling and boring for underground works.
• Manufacture of building or engineering components and machinery.
• Signage and advertisements.
• Installation of seating, blinds, shutters, etc.
• Installation of security systems and alarms.

Draft legislation has been published by HMRC with the final version of the order and guidance expected by October 2018. Businesses that are expected to be affected have been advised to identify instances where they may need to apply the reverse charge.

Ref https://www.gov.uk/government/consultations/draft-legislation-vat-reverse-charge-for-construction-services

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[edit] Related articles on Designing Buildings Wiki

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• Limitation of action.
• Suppliers.
• Supply chain management.
• VAT - Option to tax.
• VAT - Protected Buildings.