Construction Services Domestic Reverse Charge (“CSDRC”)

The CSDRC will apply to  VAT registered  businesses which  supply certain  services to other VAT registered businesses, but only where the recipient business then makes an onward supply of the same construction services. The supplier will be required to issue a VAT invoice stating that the services are subject to the CSDRC.

What are the key points?

• With effect from 1 October 2019, a person supplying certain construction industry services to a VAT- registered customer will no longer be required to account for VAT. Instead the customer will account for VAT under a “reverse charge” arrangement. That is, the customer will account for VAT as if he had himself made the supply to himself and will also, if and to the extent appropriate, recover the same VAT as input tax.
• The effect is to remove any risk that there may be deducted as input tax an amount which has never been paid over as output tax.The CSDRC applies only to supplies which would otherwise be subject to VAT at the standard or reduced rate. It does not, for example, apply to zero-rated supplies or supplies made by someone who is neither registered nor required to be registered for VAT (for example, where the supplier is below the VAT registration limit).
• The list of services to which the CSDRC applies (“construction services”) has a familiar ring—they are the same services as those to which the Income Tax Construction Industry Scheme (“CIS”) applies. They thus extend not only to construction but to alteration or repair of buildings, some types of electrical and plumbing work, site clearance etc. The CSDRC also extends to any goods or materials supplied in conjunction with “construction services”.
• The CSDRC applies only to services that are made to a contractor: it does not apply to an “end-user” customer. However, there may be situations when this rule may be relaxed where both parties agree. Further guidance is due to be published by HMRC in the coming months which will shed light on this.
• Unlike some other “reverse charge” schemes, amounts accounted for under the CSDRC will not count towards the VAT registration limit. This means that if a customer is not already required to be registered for VAT, the CSDRC “deemed self-supplies” will not make him so.What does this mean for you?

The full document can be found here.