By Alex Nicholson VAT Director, Armstrong Watson

FROM 1 October 2019 there will be a significant change to how suppliers in the construction industry supply chain account for VAT.

The changes will apply to businesses making or receiving specified services that are reported under the Construction Industry Scheme (CIS).

The change in legislation is an anti-fraud measure designed to counter “missing trader” fraud – a practice where parties in the construction supply chain charge VAT to customers and then ‘disappear’ without remitting the VAT collected to HMRC.

The reverse charge will not change the VAT liability, but instead changes the way in which VAT is accounted for, effectively shifting the VAT accounting responsibility from supplier to recipient, who must account for output VAT on a supply received and, simultaneously, recover some/all of this to the extent allowed.

Generally, every supply in a supply chain, except those to its “end user”, will be subject to the reverse charge where the supplies involve work to the fabric of a building including; site preparation, demolition and clearance, new build work, alterations, repairs, installing means of light, heat and power and clean-up works following developments (together: “specified services”).

Any goods supplied with these services will also be subject to the reverse charge, however supplies of (for example) architectural services, the delivery of materials and so on will not. Supplies to the ‘end user’ in a supply chain will not be subject to the reverse charge and will instead be subject to VAT at the appropriate rate.

Aside from the significant administrative burden to construction firms of all sizes, the biggest issue will be the negative impact on cashflow for subcontractors. Materials suppliers are not included, so VAT will still have to be paid on materials purchased and claimed back through the VAT return but subcontractors will not have the use of the VAT paid to them by their customers for up to three months as they do currently.

With HMRC confirming that they will penalise non-compliance, it is crucial that any businesses who think they will be affected by these changes acts now to prepare. Our dedicated VAT team is happy to speak to all affected businesses in order to advise on specific circumstances and provide bespoke guidance. Please contact Alex Nicholson, VAT Director, on 0771 847 9724 or email