New VAT Reverse Charge for Construction Industry Labour

The Autumn Budget of 2017 announced that there would be a change to the VAT regime for Contractor Labour starting in October 2019. Similar to the existing CIS scheme this will mean that VAT charged on labour will be paid over by the recipient of the labour service rather than the supplier.

This means yet another scheme for contractors to run alongside CIS when using subcontractors.

The government published a response to their consultation on the 1st of December 2017. In it they confirmed that:

  • The scope of the reverse charge will follow the Construction Industry Scheme definition of construction services.
  • There will be no threshold applicable to the measure and no exemption for Flat Rate Scheme users (even though they will effectively have to leave the scheme to be able to recover VAT on the costs).
  • Sales to the final customer in the chain will not be covered by the reverse charge. Respondents to the initial consultation warned that there may be particular definition issues for joint ventures and special purpose vehicles in the voluntary and public sectors so the definition of ‘the final customer’ will be subject to further consultation in Spring 2018.

If you would like any advice on how this will affect your Contracting business please get in touch!