The introduction of the Construction Industry Scheme reverse charge will see a big shift for contractors and the way taxes are paid going forward.
HMRC has introduced the reverse charge as a new way to manage tax as a contractor or business. The domestic reverse charge means that instead of the supplier paying the VAT to HMRC (as is done under CIS), the customer receiving the specified service will cover this instead. In turn, the customer can recover the VAT, subject to the normal rules for VAT recovery.
When is the reverse charge coming into action?
HMRC announced on the 6th September 2019 that these changes were being delayed for the following reasons;
“Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019. To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.”
We believe that the CIS proposal will remain the same, simply with a different go-live date.
What services are affected by the domestic reverse charge?
The reverse charge affects supplies of construction and building services, which are supplied at the standard or reduced rates that also come under the CIS policy. These are referred to as specified supplies.
It’s important to differentiate between CIS and the reverse charge where materials are included within a service. The reverse charge applies to the entire service, as opposed to CIS payments, where net status sub-contractors are divided and no deducations are made on the materials used.
The reverse charge does not apply if:
- The service is zero rated for VAT
- The customer is not registered for VAT in the UK.
If you supply any of these services, you’ll be required to apply the reverse charge:
- constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
- constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours
- pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
- 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 inside or the external surfaces of any building or structure
- services which form an integral part of, or are part of the preparation or completion of the services described 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.
Which services are excluded from the domestic reverse charge?
The following services will not be subject to the reverse charge:
- drilling for, or extracting, oil or natural gas
- extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
- manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
- manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
- the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
- making, installing and repairing art works such as sculptures, murals and other items that are purely artistic
- signwriting and erecting, installing and repairing signboards and advertisements
- installing seating, blinds and shutters
- installing security systems, including burglar alarms, closed circuit television and public address systems.
Get in touch today
At Cloudsource Solutions, we understand that implementing the reverse charge may cause some companies difficulties, but don’t worry, our experienced team will guide you through the legislative changes and how they affect your business. Contact us today to find out more to get ahead of the curve.