VAT: domestic reverse charge for building and construction services. Effective 1st October 2019

Employment Businesses not affected

Further information on the scope of the new reverse charge and how it will operate can be found in this guidance note, published by HMRC in June 2019.

On 1 October 2019 a new VAT reverse charge will apply in the construction sector (via the Value Added Tax (Section 55A)(Specified Services and Excepted Supplies) Order 2019).  

It is being brought in to tackle what HMRC say is significant VAT fraud in that sector.  A VAT reverse charge works as follows: instead of the supplier charging VAT and paying that over to HMRC, the client which receives the VATable service deducts the VAT before or at the same time as paying the supplier and pays it directly to HMRC.  So the supplier does not receive the VAT and therefore cannot withhold payment from HMRC.  

The reverse charge will apply where suppliers provide specified construction services - those services are based on the definition of construction operations as defined in Section 74 of the Finance Act 2004 but will only apply where payments are required to be reported for the purposes of the Construction Industry Scheme (CIS). 

Recruitment businesses provide labour to the construction sector and a majority will be registered for CIS or will use CIS intermediaries to pay construction workers.  However they do not provide the specified construction services to which the reverse charge will apply.

As stated in HMRC’s Guidance, “Employment businesses who supply staff and who are responsible for paying the temporary workers they supply, are not subject to the reverse charge.”

Further reference to the status of Employment Businesses’ s can also be found in the HMRC Employer Bulletin August 2019 Issue 79 under the heading Contractors operating CIS – new VAT reverse charge on building and construction services.

“ • the scope of supplies affected is closely aligned to the supplies required to be reported under the CIS, but does not include supplies of staff or workers by employment businesses.”

There is therefore no requirement for Bamford Contract Services Ltd to change the way that VAT invoices are raised for construction clients and the VAT collected will continue to be paid directly by Bamford to HMRC in the usual way.

 Bamford Contract Services Ltd – August 2019