VAT reverse charge in the construction sector – prepare now to avoid penalties later

HMRC has confirmed that the reverse charge for building and construction services will be introduced from 1 October 2019.  As a reminder, the reverse charge will affect supplies at the standard and reduced rate of VAT where payments are required to be reported through the Construction Industry Scheme (“CIS”).
 
HMRC has stated that it will apply a “light touch” in dealing with errors occurring in the first six months after introduction, where it’s evident that businesses are trying to comply with the legislation. However, businesses that knowingly treat themselves as the end user when the reverse charge should have been applied will still be liable to the tax and may be subject to penalties.
 
The go-live date for the reverse charge will coincide with the introduction of Making Tax Digital (MTD) for businesses which have been allowed to defer the introduction until 1 October 2019. This will include VAT groups for example. Other businesses will be required to implement MTD from 1 April 2019. Therefore, 2019 is likely to be a busy year for IT teams.
 
Businesses in the construction industry are advised to check their systems are capable of dealing with the reverse charge now and be able to communicate the new rules to their subcontractors to ensure that they ensure compliance and avoid potential penalties.
 
If you would like to discuss the reverse charge or MTD in more detail, please contact Terri Bruce.
 
More details about the application of the reverse charge can be found in the guidance note produced by HMRC.
 

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