18th June 2019

Following on from our previous article, HMRC have announced an updated guidance for those who are going to be affected by the significant amendment to the VAT rules for construction services known as ‘domestic reverse charge’ accounting.

The domestic reverse charge, referred to as the ‘reverse charge,’ will be coming into effect on 1 October 2019. Under the new revision, the actual rate of VAT on construction services will not be changing; however, the accountability will be shifting. The customer receiving the service will now have to pay the VAT that is due to HMRC, instead of paying the supplier. This will only apply to individuals or businesses that are registered for VAT in the UK, but it will not affect consumers.

You will be affected by this adjustment if you supply specified services that are reported under the Construction Industry Scheme (also known as CIS). To prepare for this change, you need to:

  • Check whether the reverse charge affects your sales, purchases, or both;
  • Contact your regular suppliers or clients to let them know;
  • Review your accounting systems and software to ensure that are updated to deal with the reverse charge;
  • Consider whether the change will have an impact on your cash-flow.

In order to offer guidance to those who may be affected by the changes to the VAT rules, HMRC have released a flowchart to help them identify whether they need to apply normal VAT rules, or apply the domestic reverse charge. You can download UNW’s version of that here, and also see it below. For further information and an overview of reverse charge accounting, visit the relevant HMRC web-page here.

Due to the nature of the amendments, HMRC have also announced that they will be lenient in dealing with errors and mistakes made when implementing the reverse charge within the first six months of the new legislation. This is as long as those affected are acting “in good faith,” and are trying to comply with the new legislation. HMRC officers may assess for errors within this time period, but penalties will only be considered if someone is trying to deliberately take advantage of the measure.

If you would like further guidance on this topic, please do not hesitate to contact one of our dedicated VAT specialists: Mark Hetherington, VAT Partner, on 0191 243 6073 or at markhetherington@unw.co.uk; or Ian Coulthard, VAT Manager, on 0191 243 6017 or at iancoulthard@unw.co.uk.

In addition, for matters concerning the Construction Industry Scheme (CIS), please contact either Lee Muter, Employment Taxes Partner, on 0191 243 6089 or at leemuter@unw.co.uk; or Rebecca Kemp, Employment Taxes Consultant, on 0191 243 6070 or at rebeccakemp@unw.co.uk

Flowchart demonstrating whether you need to apply normal VAT rules, or apply the domestic reverse charge.


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