VAT Domestic Reverse Charge – 12 month deferral

HMRC has delayed implementing the domestic reverse charge for construction services for a further 12 months. The changes to legislation were designed to combat fraud within the construction sector and were intended to become live from 1 October 2019.

After taking representations from industry bodies, HMRC have given construction businesses more time, amid concerns that many are still not aware of the proposed rule changes and the potential clash with Brexit related issues to contend with over the upcoming months.

In conversations with our clients since the announcement on Friday 6th September 2019  it is clear that the deferral is welcome. However, as this is only a delay, we urge businesses to understand the cash flow implications of this rule change, together with considering how they may need to adapt accounting systems and communicate with relevant stakeholders in good time before 1 October 2020.

If you have any queries regarding this matter then please get in touch with Joe Sullivan

Our annual CSR results for 2019 are in!

We have had another fantastic year at MHA Moore & Smalley. After sending out the survey to over 4200 clients, we have received an overall satisfaction score of 96%, a 1% increase on last years, already great, result.

This score is based on clients’ answers in response to questions that rate us in terms of communication, technical ability, commitment to each individual business, and our CRM.

Thank you to everyone who got involved. Delivering outstanding client service is at the heart of everything we do. Therefore it is wonderful to know that we are delivering on our mission, vision and values, as we continue to improve and strive to be the best we can be.

Take a look at this year’s results below

VAT and Residential Property

Following on from our previous construction and real estate video, today we are focusing in on VAT in residential property development.

Clients should be considering:

– How to go about incurring little VAT in the construction phase

– Minimising working capital

– Getting cash flow projections correct

– What classes as zero rated and where will VAT be charged

Watch what experts Jonathan Main and Joe Sullivan have to say…

HMRC has published further guidance on the VAT domestic reverse charge applying from 1 October 2019 to supplies of building and construction services.

The reverse charge affects businesses who supply specified services that also need to be reported under the construction industry scheme (CIS).

The new guidance has more detail and examples to help suppliers check whether their customers are end users or intermediaries. The reverse charge does not apply to customers who are end users, or if they are ‘intermediary suppliers’. The concept of intermediary suppliers means that if a number of connected businesses collaborate to purchase construction services, they are all treated as if they are end users and the reverse charge will not apply to their purchases. For this purpose, intermediary suppliers are VAT and CIS registered businesses connected or linked to end users, who:

  • share a relevant interest in the same land where the construction works are taking place;

and

  • belong to the same corporate group or undertaking.

The guidance suggests a practical way of dealing with the question of end-user status would be for businesses to include a statement in their terms and conditions to say they will assume their customer is an end user, unless they say they are not.

HMRC acknowledges that some businesses who have large numbers of active contracts with sub-contractors at a variety of sites may have difficulty establishing whether the reverse charge applies or not in the run-up to 1 October 2019. The guidance therefore states that where contractors can see that the reverse charge applies to more than 5% (by volume or value) of all contracts with one sub-contractor, they may apply the reverse charge to all contracts with that sub-contractor.

Transitional arrangements mean that normal VAT rules apply to invoices for supplies entered into customers’ accounting systems before 1 October 2019 and if payment is made on or before 31 December 2019. The reverse charge will apply in all cases where invoices are entered into systems on or after 1 October 2019, or payment is made on or after 1 January 2020.

The guidance covers situations in which businesses may become repayment traders as a result of the reverse charge removing the need to pay VAT on some of their sales.  It also details how best to move over to monthly returns should this be the case.

Examples are provided of how the reverse charge will apply to supplies of construction services made to certain sectors, such as utility companies and local authorities or other public bodies, including planning gain agreements.

Employment businesses who supply staff, and who are responsible for paying the temporary workers they supply, are not subject to the reverse charge.

The guidance can be found here and a presentation done by our partners Johnathan Main and Joe Sullivan can be found here.

Further Advice

If you would like to discuss this article in more detail or you would like to speak with a member of our team, please on 01772 821021 to be put in contact with a member of our Specialist VAT Advisers team.

Minimum Energy Efficiency Standards (MEES) and their impact on financial statements

In this video, Paul Williams, Partner at MHA Moore and Smalley talks about the impact Minimum Energy Efficiency Standards (MEES) have on financial statements for companies that own and let investment properties.

Paul gives an overview of the regulations, he describes which properties are affected and explains how and why this impacts the financial statements of a company.

VAT Planning ahead of Land and Property Developments

A recent Upper Tribunal case between The Glasgow School of Art v HMRC highlighted the need to review VAT implications before renovating or developing a building and/or land.

The Background

The school was undertaking a project of the partial demolition, reconstruction and refurbishment of a building (Assembly Building) and the construction of a new building (Reid Building). The project was to be undertaken at the same time and the finished structure would be the Reid Building wrapping around and above the Assembly Building. There would be one wall of the Reid Building that would rest on the Assembly Building.

The Assembly Building was designed as a Students Union with bar and club (a taxable business). The Reid is managed by the School and serves several art school functions (a charity with Exempt supplies).

In order to receive funding, there had to be a ‘physical and useable link between the Assembly Building and the Reid Building.’ The design was therefore amended to include a single door connecting the two buildings.

VAT Implications

The Glasgow School of Art believed that the two buildings are separate and capable of being and were operated independently. In practical terms, there is no access between them as the single door is not used. They had different appearance, functions and opening times and a separate occupation. The school wanted and obtained two separate premises with different purposes.

The school put forward that all the Input Tax relating to the VAT incurred on costs relating to the Assembly Building should be claimed.

Appeal Decision

HMRC, the First Tier Tribunal and the Upper Tribunal determined that the builds are classed as one building and the construction was a single supply for VAT purposes. The reasons including:

  • a single price was charged by the construction company under a single contract
  • the funding was required for the project as a whole
  • the planning application was for both buildings
  • there has always been a physical link (internal door)
  • the whole construction was viewed as a single project
  • the site was repeatedly described as ‘the Reid Building’
  • there is no evidence that the Reid Building could have been constructed without the Assembly Building.

Although the school wanted and obtained two separate premises with different functions, this does not mean that there are two separate supplies for VAT purposes. As the building related to both Taxable and Exempt supplies, the full amount of Input Tax relating to The Assembly building could not be claimed.

Further Advice

A different approach to the build before construction could have changed the number of supplies that were being made and therefore increase the amount of Input Tax that could have been claimed.

If you would like to discuss this article in more detail or you would like to speak with a member of our team, please on 01772 821021 to be put in contact with a member of our Specialist VAT Advisers team.

Tax services for commercial property lawyers

Construction and real estate is one of the largest sectors in the UK, the construction industry is also one of the most complex; there is a maze of regulations, uncertainties and risks to deal with.

Our specialist tax advisers truly understand the nature of the construction industry and the challenges faced by business owners in the sector to get it right, and reduce the risk of an investigation by HMRC.

We work with a wide range of clients in the construction sector – including commercial and residential developers, contractors, sub-contractors, civil engineers, and architects – guiding a business from start-up, through growth strategies and surviving a changing economy all the way to exit planning.

Our tax specialists are well placed to work with commercial property lawyers and our fact sheet sets out the specialist areas where our expertise can add value to the work done for clients.

VAT Domestic Reverse Charge – How does this affect the construction sector?

The VAT rules for property developers and investors are increasingly complex. For example, on 1 October 2019 new legislation aimed at tackling VAT fraud in the construction sector will come into force.  The measure aims to shift liability to account for VAT on supplies of construction services to the customer rather than the supplier.  In our webinar, Jonathan Main, VAT Partner at MHA Moore and Smalley provides an overview of the most important VAT issues to address and concentrates in detail on the forthcoming changes intended to combat VAT fraud in the sector.