VAT Reverse Charge for the Construction Industry: What Recruiters Need to Know

Construction industry

In October 2019, the way VAT is collected in the construction industry will undergo a major change, as the Domestic Reverse VAT Charge for Construction Services is implemented.

How construction industry recruiters can avoid the risks of tax evasion: download our free guide>>.

Where services are affected, the customer or client receiving the services will have to pay the VAT to HMRC, rather than the supplier.

The reverse charge affects payments that are reported under the Construction Industry Scheme (CIS) for supplies that are closely aligned to those defined as construction operations under CIS.  Among those included are construction, alteration, repair, extension, painting and decorating, plus the demolition of buildings, civil engineering and the installation of heating, lighting and air conditioning. 

The reverse charge does not apply where:

  • The services are supplied to an end user, such as the property owner
  • The recipient makes onward supplies of the construction services to a connected company
  • The recipient is not VAT registered, or required to be VAT registered
  • The recipient is not registered for the CIS
  • The supplier and recipient are landlord and tenant

The aim of the reverse charge

The reverse charge is intended to tackle so called “missing trader fraud” where suppliers charge VAT before closing down their business and disappearing, without ever paying the VAT they’ve collected to HMRC. By having the customer pay VAT directly to HMRC, it’s hoped that the opportunity to “steal” it will be removed.

Does the reverse charge affect recruiters serving the construction industry?

There has been some uncertainty among recruiters about whether the services they offer to the construction industry are covered by the reverse charge. HMRC has recently updated their guidance to address the lack of clarity.  

The supply of staff is not considered to be a supply of construction services, and is not affected by the reverse charge, even if the staff are supplied to undertake construction services.

HMRC’s guidance goes on to say that the important distinction between supplying staff and supplying construction services is that the individual workers are employed or paid by the employment business, not by the construction business using them to supply construction services.

Are there any exceptions?

The only way a recruitment business might be affected by the reverse charge is if they supply other services as well. For example, if they manage the work itself rather than just supplying staff to do the work.

Staff supplied through Orange Genie Construction

Whether your workers are employed by our umbrella company, or using our CIS self-employed solution, the principle is the same. The business paying the contractor is not supplying construction services, so the supply of staff is not affected by the VAT reverse charge. 
If you have any questions or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.

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