The upcoming VAT changes for contractors and subcontractors in the building and construction industry come into force from 1st October 2019 in respect of invoices within the CIS scheme. Referred to as the domestic reverse charge, this means that from this day subcontractors will not charge VAT on supplies that are subject to the domestic reverse charge, and instead the main contractor will charge the VAT on their returns to be submitted to HMRC. For example, if you charge the main contractor for £500 of services, you will no longer add £100 of VAT to your invoice/application as a subcontractor. However, the main contractor will include the VAT on their returns submitted to HMRC. This means that subcontractors should be mindful of the fact that they will not receive any VAT they would normally charge to a contractor from this date which may cause cashflow issues in the first month/quarter as VAT will still be paid out on any purchases.

Further considerations

  • Changes to accounting systems – subcontractors will need to ensure their accounting systems are able to process the domestic reverse charge to enable correct submissions to HMRC. HMRC will be operating a light touch in dealing with any errors in the first six months of operation
  • Contacting customers/subcontractors to ensure they are aware of the changes and can deal with the upcoming changes. Contractors (customers) will need to confirm to you that the domestic reverse charge will apply.

HMRC have produced the below flow chart within their Guidance Note issued on 7th November 2018 to help you ascertain whether the domestic reverse charge will apply to you.

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