Residential Developments

HMRC Guide for VAT on Construction

by Berthold Bauer on November 9, 2018

HMRC have now clarified the process Contractors will need to adopt from 1st October 2019 when paying Sub Contractors. 

As expected this will mirror the Reverse Charge procedure many of you will be familiar with when purchasing materials from Europe, whereby you effectively bill yourself a sum equivalent to 20% VAT – reclaiming it as input tax where you would normally do so.

The guide is well written & includes a useful decision flowchart. Basically if you are a Contractor, and you apply CIS to a subbie – you will also need to pay him Nil VAT & apply the above Reverse Charge procedure.

On the same note, it is apparent that HMRC are now strictly applying the ‘VAT charged in error will not be refunded’ rule. This is where the lower rate of VAT for a new build or qualifying conversion has not trickled-down the Supply Chain – any 20% VAT subsequently charged by a subbie cannot be reclaimed by a Contractor as input tax.

In the same vein, the new Reverse Charge process will follow the same logic – only account for zero rated VAT on eligible New Build Trades, and only account for 5% VAT on appropriate Conversion Trades.

Please do not hesitate to contact a member of the Private Client team for any questions you may have.

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