New guidelines published recently by HMRC will be of interest to anyone involved in the building and construction sectors. They give extra advice on domestic reverse charges coming into effect on 1st October 2019 for these industries. The main issue many feel such fundamental amendments to VAT rules could bring is disputes caused by these latest rules on certain transactions.
Update to VAT collection via the DRC
The DRC (or Domestic Reverse Charge) represents a big change to VAT collection in the construction and building industries. In basic terms, it will see the person receiving a service pay VAT direct to HMRC, rather than paying VAT direct to the supplier.
This will apply only to businesses or individuals who are UK VAT registered and supplying specific services that the Construction Industry Scheme covers. The new DRC levy will not come into effect for any zero-rated services or incidences where the customers themselves are not UK VAT registered. The DRC charge will also not be applicable to services classed as being provided to intermediaries connected with end users or direct to end users themselves.
Updates Given To Key Areas In New Guidelines
Since the draft guidelines were initially released, updates have been issued to cover areas where questions had arisen. These include:
Changing VAT treatment mid-contract
When and how to check if a customer is an intermediary or end user
Checking whether a customer is CIS or VAT registered
Guidance on transitional payment rules for payments entered into accounting packages pre 1st October 2019 but where the payment is made on or after that date
If larger contractors hold a lot of contracts with one sub-contractor the DRC may be applied to all contracts if it first applies to over 5% of them by value or by volume.
How Can Businesses Get Ready For These Changes?
Under the newly released guidelines, HMRC has advised UK businesses to get ready for the changes as below:
Inform regular suppliers and clients of changes
Review if the DRC impacts purchases, sales or both
Making sure all accounting software and systems can handle the DRC
Consider the impact that the DRC may have on company cashflow
New Reverse Change Plans Not Without Controversy
What has exasperated some in the building and construction sectors is how long these new guidelines have taken to arrive. With only 3 months left until the implementation of the DRC, it has given little time for companies to prepare as needed. This will leave many scrambling to make all the necessary arrangements in time. When you also factor in that the DRC will coincide with Making Tax Digital and Brexit, massive changes will hit many UK companies at once.
If you need any help with preparing for these changes for your business, get in touch today. We are experts in the field of accountancy and will be able to help you understand better how the DRC may affect you directly.