Category: Taxation

Construction suppliers to stop charging VAT to customers from October 2020

By Richard Staunton

16 Mar 2020

From 1 October 2020, the Domestic Reverse Charge (DRC) will be implemented. This is a fundamental change to the way in which building and construction service providers will charge VAT. 

From 1 October, in most cases, VAT will not be charged by the supplier of building or construction services but instead the customer will account for the VAT under the reverse charge mechanism. In effect, this means that customers will declare VAT on their VAT return and, subject to the normal rules, will recover that VAT as input tax on the same return.   

The DRC already applies to certain supplies in the UK including mobile telephones, wholesale gas and emission allowances.   

However, there are some exceptions. Where the services are supplied to the final customer, or the ‘end user’, VAT should be charged in the usual way. VAT should also be charged if the customer is either not registered for VAT or is registered for CIS. Additionally, employment businesses are not affected by the change.

The DRC was originally set to be implemented in 2019 but was postponed. There is an outside possibility that there may be a further postponement but we think that is very unlikely. 

We would advise that suppliers must ensure that VAT is not charged and customers should also ensure that they are not charged VAT when they are receiving services affected by the change. 

HMRC are likely to disallow VAT that has been claimed incorrectly. 

While HMRC may apply a ‘light touch’ to assessments and penalties, for errors made after 1 October 2020 this cannot be guaranteed. We would urge anyone likely to be affected to check that their systems and procedures are able to meet these new rules. 

These are the changes as they currently stand. However, in light of the unprecedented circumstances caused by the COVID-19 outbreak, the implementation date could change. We will monitor all updates from the government and keep this article updated in case of any changes. For more information regarding Coronavirus and the support available, visit our FAQs page.

If you are concerned about the implementation of the DRC and would like to seek advice, contact our VAT partner, Richard Staunton, at rstaunton@geraldedelman.com

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