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Douglas Home & Co advise construction companies to become familiar with the new HMRC VAT rules set to come into effect on the 1st October.

Posted: 29th August 2019

One of Scotland’s leading accountancy firms, Douglas Home & Co are encouraging construction companies to be prepared for the new “reverse charge” which will have a large effect on their industry. The new rules will be introduced on the 1st October 2019 and will change the person responsible for paying VAT to HMRC between the contractor and sub-contractor. Douglas Home & Co are hosting a seminar on the 12th September to educate businesses about these changes, details can be found below.

Geoff Campbell, Payroll Manager at DHCO, commented:

‘Changes have been brought in to ensure that VAT fraud is removed from supply chains and will impact up to 150,000 businesses. A wide range of construction businesses who will be affected include builders, joiners, electricians and ground workers.’

The new system will result in the customer accounting for the sale VAT to HMRC instead of the supplier.

Under the current rules, the sub-contractor (supplier) will send a standard invoice to the main contractor (customer) that states what VAT needs to be paid. The new rules will result in the sub-contractor no longer paying this VAT to HMRC, instead, it will be the main contractor who pays it. Therefore, the main contractor will pay the total amount of money due, less VAT and normal CIS deduction, to the supplier.

There are several exemptions to the new legislation including

  • Only applies to suppliers between VAT registered businesses. Therefore, the VAT treatment to an end user (eg property owner or businesses who plan to sell or rent the property) remains the same
  • Zero-rated construction of new houses
  • Certain supplies between connected companies and landlords and tenants

Geoff continued, ‘To ensure you are compliant with the new rules, we suggest that you become familiar with the change in legislation and adapt your accounting systems to enable reverse charge suppliers to be calculated and reported. Any construction businesses effected will also need to keep records of all reverse charge supplies and report them on VAT returns. This reverse charge will impact small and micro businesses as many use the VAT they collect as working capital until they pay it to HMRC.’

End users also have the responsibility of declaring their position to suppliers to ensure the reverse charge does not apply. This should be done through writing to the supplier.

To help business within the construction industry to clearly understand the “reverse charge”, Douglas Home & Co are hosting a seminar at 9am on the 12th September at their Kelso office. Tickets are free but there is limited availability, they can be reserved through a link on their website.

If you need help to understand the new regulations and get your accounting systems in order, please contact Geoff Campbell on geoffc@dhco.co.uk or 01573 225082. A consultation can be arranged to understand your position and provide ongoing guidance.

Douglas Home & Company is a Chartered Accountancy and Tax Advisory firm offering expert advice and financial leadership to individuals and businesses of all sizes. They have eight offices across Scotland and North England with their headquarters located in Kelso, Scottish Borders. To find out more about Douglas Home & Co, please visit www.douglashomeandco.co.uk


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