VAT is a particularly complex tax for the construction sector, with multiple VAT rates potentially applying to a property development. This makes it easy for a supplier to charge the wrong rate of VAT; also, the recipient of the supply may not be aware that this has occurred resulting in an over claim of VAT and the exposure to an assessment.

To add to the complexity, the budget has confirmed that a significant change to VAT accounting for businesses within the construction sector will come into force from 1 October 2019. This change had been previously announced but few in the construction industry seem aware of the change or are taking steps to amend systems so that VAT is accounted for correctly once the changes come into effect.

Those supplying certain building and construction services to other builders and not to the end property owner will no longer charge VAT; instead the customer will self-account for VAT by making a reverse charge. The aim is to combat potential frauds within the sector involving input VAT claim frauds.

This change will require affected businesses to make major changes to their accounting system to ensure that VAT invoices are not issued in error for specified services and the reverse charge is correctly accounted for by the recipient. This is likely to create some headaches for businesses, particularly those involved in “mixed’ property developments where the reverse charge may relate to constructing zero rate new dwellings, reduced rate conversions resulting in a change in the number of dwellings and standard rate commercial units.

The change comes into effect from 1 October 2019 and will therefore follow relatively shortly after Making Tax Digital (“MTD”) comes into effect.

If you supply construction services or advise businesses that supply such services it would be sensible to seek further advice on what this change or any other VAT issues will mean to your business or your client. We welcome calls from builders and their advisors on any VAT issues on our free VAT helpline.