CSDSC Guide: The Construction Services Domestic Reverse Charge
Who will CSDSC affect?
CSDSC will affect Individuals, Partnerships or Company’s supplying certain construction industry services to a VAT registered customer.
Which supplies are affected?
The new rules only apply to “construction services”. The definition is the same as that used in the Construction Industry Scheme (“CIS”). It should be familiar to most businesses operating in the industry.
Specific types of supplies which will be affected include:
• Construction, extension, demolition, alteration or repair of buildings or of any works forming part of the land
• Installation in any building of a heating, lighting, air conditioning, power, water, drainage etc system
• Internal cleaning of buildings so far as carried out in the course of construction, extension, etc
• Painting or decorating the internal or external surfaces of any building
Which supplies are excluded?
Fortunately, there are some exclusions from the CSDSC charge, including:
• Materials and services which would normally be zero-rated for VAT purposes
• Supplies made by someone who is neither registered nor required to be registered for VAT
• Materials which are not within the definition of construction services where supplied on their own
• Components for systems of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection
• Professional services of architects or surveyors, building consultants etc • Installation of seating, blinds and shutters
• Installation of security systems such as burglar alarms, closed circuit television and public-address systems
• ‘End user’ supplies. An ‘end user’ is an individual or business buying the services for their own use, rather than to sell on.
How will the CSDRC work for suppliers (sub-contractors)?
Invoicing: The supplier is still required to issue a valid VAT invoice, and this must include all the information normally required on a VAT invoice, however, the supplier must not charge the VAT on the invoice. Instead, the supplier must directly reference that the CSDRC applies to the supply, and the following wording should be included on the invoice: ‘Reverse charge: VAT Act 1994 Section 55A applies’
VAT return: The amount of VAT subject to the CSDRC must not be included in the ‘box 1’ figure on the VAT return. The supplier should however include the net amount of invoices raised under CSDRC in ‘box 6’ of the VAT return.
Practical considerations: A supplier may need to consider the loss of cashflow. The (legitimate) opportunity to use VAT to fund cashflow between the time it is received from the customer and the time it must be paid over to HMRC will no longer exist
How will the CSDRC work for customers (contractors)?
VAT return: The customer will account for the amount of VAT due under the CSDRC in its ‘box 1’ figure. The amount of VAT payable as output tax will also be reclaimable as input tax in the customer’s ‘box 4’, subject to the normal rules for the recovery of input VAT. The customer should account for inputs in ‘box 7’ using the usual accounting procedure.
Practical considerations: As a customer, you will no longer suffer a delay between paying out VAT and recovering it, since both will now be dealt with on the same VAT return.
We are here to help. We can work with you in several ways in looking to review your business transactions to determine whether the CSDRC is to apply and, where applicable, to determine the changes which may be required to your systems to comply with the revised rules.
Please get in touch with your usual Cardens contact or email Adam Thompson () to discuss any issues raised.