New reverse charge on VAT for the construction industry

24 May 2018

Starting 1st October 2019 HMRC will introduce a new reverse charge on labour related to construction services which will affect all businesses in the sector. It has become apparent that organised fraud within the construction industry has led to losses of VAT estimated at £100 million per year.

There will now be a reverse charge on supplies of labour, and we will provide further information on this as it becomes available.

This means that the customer in the transaction will be responsible for accounting for the VAT to prevent a fraudulent supplier collecting the tax and not paying it over to HMRC. If you are in the construction industry you will therefore need to understand what you will need to do if you purchase external labour.

You will be required to report these transitions in your VAT return. There are no plans for a reverse charge sales list at present which will mitigate the administrative burden of the measure. However businesses that use the VAT they collect to ease their cash flow and provide working capital may be adversely affected by this measure

If you work in this industry and would like to discuss this further please contact our tax team today on 02476 518 555.