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VAT: domestic reverse charge for building and cons

VAT: domestic reverse charge for building and cons

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Hello,

A client has asked about these new rules. They provide a kitchen supply and fit service to smaller versions of the likes of Taylor Wimpey etc.

HMRC guidence https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and... says:

Asking customers about end user or intermediary status

You may not be sure whether you are supplying a customer who is an end user or intermediary supplier. In this situation, you should ask the customer if they are an end user or intermediary supplier and keep a record of the answer. It will be up to the customer to make the supplier aware that they are an end user or intermediary supplier and that VAT should be charged in the normal way instead of being subject to reverse charge.

Sometimes it may be obvious that the customer is an end user, for example if there is a repeat contract, and it will be acceptable for you to charge VAT in the normal way.

Examples of end users include UK VAT registered mainstream or deemed contractors under CIS rules. They are typically not construction businesses and are found in the retail, manufacturing, utilities and property investment sectors as well as public bodies. Property developers should also be end users in cases where they do not make onward supplies of building or construction services.

If my client supplies Taylor Wimpey direct is it correct that these rules do not apply as Taylor Wimpey do not make an onward supply of building or construction services and are a VAT Registered Mainstream Contractor?

Many thanks

Replies (45)

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RLI
By lionofludesch
31st Aug 2019 10:28

Are you saying that Taylor Wimpey will be doing the cooking in these kitchens ?

If so - no, the rules don't apply.

However, it seems unlikely to me.

It seems far more likely that Taylor Wimpey will be selling the house to someone else who will be doing the cooking.

Taylor Wimpey are, therefore, not the end user.

I'm not seeing the difficulty in interpretation here, yet this has been asked more than once.

Thanks (2)
Replying to lionofludesch:
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By johnhemming
31st Aug 2019 15:12

Reading the link I would think the point is that Taylor Wimpey are not supplying building services, but in fact are selling houses.

I don't know where the original statutory instrument is for this, but it does appear to me that the OP is right in the Taylor Wimpey example.

Hence this does need some going back to source (beyond the HMRC website).

Thanks (1)
Replying to lionofludesch:
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By CWservices6064
31st Aug 2019 15:28

I think it’s HMRCs reference to:

Property developers should also be end users in cases where they do not make onward supplies of building or construction services

My thought was that they were the end user in the construction services chain and not proving any ongoing CIS supply.

I’m always happy to take guidance and advice from my superiors and frequently do.....

Thanks (0)
Replying to CWservices6064:
RLI
By lionofludesch
31st Aug 2019 15:56

If your client was fitting a kitchen in an office occupied by Taylor Wimpey, Taylor Wimpey would be the end user.

That's not how I read the scenario you presented, though.

"Property developers should also be end users in cases where they do not make onward supplies of building or construction services."

Is Taylor Wimpey not making an onward supply of a house ?

Thanks (0)
Replying to lionofludesch:
Psycho
By Wilson Philips
31st Aug 2019 17:50

lionofludesch wrote:
Is Taylor Wimpey not making an onward supply of a house ?

Is that not the distinction? Taylor Wimpey - being a developer and not a building firm - is making a supply of an asset, not a supply of the work undertaken to construct the asset.
Thanks (0)
Replying to Wilson Philips:
RLI
By lionofludesch
31st Aug 2019 17:56

Wilson Philips wrote:

lionofludesch wrote: Is Taylor Wimpey not making an onward supply of a house ?
Is that not the distinction? Taylor Wimpey - being a developer and not a building firm - is making a supply of an asset, not a supply of the work undertaken to construct the asset.

If the house is new, there's no VAT on the subcontract services so the new rules don't apply anyway.

Thanks (1)
Replying to CWservices6064:
RLI
By lionofludesch
31st Aug 2019 16:44

CWservices6064 wrote:

My thought was that they were the end user in the construction services chain and not proving any ongoing CIS supply.

I would suggest that if, in the scenario you outline, the new regs don't apply, they'll apply in hardly any situations at all and the new rules will be worthless.

Thanks (2)
Hallerud at Easter
By DJKL
31st Aug 2019 16:59

What do Taylor Wimpey minor sell? Is it a new residential property? If it is this is a zero rated supply.

therefore consider HMRC guidance here

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and...

"The reverse charge does not apply if the service is zero rated for VAT or if the customer is not registered for VAT in the UK."

If Taylor Wimpey Minor are building houses for resale your client (in the main) will likely have a zero rated supply to Taylor Wimpey- in such cases reverse charge does not apply.

Thanks (0)
Replying to DJKL:
RLI
By lionofludesch
31st Aug 2019 17:15

DJKL wrote:

If Taylor Wimpey Minor are building houses for resale your client (in the main) will likely have a zero rated supply to Taylor Wimpey- in such cases reverse charge does not apply.

Covers a new house, but still leaves the situation of an extension or a new kitchen.

To be fair, if the supply is zero rated anyway, I'm not seeing how there's a problem, even if the new rules did apply. No VAT is no VAT.

Thanks (0)
Replying to lionofludesch:
Hallerud at Easter
By DJKL
31st Aug 2019 19:41

Not sure TW do extensions.

The flowchart in the guidance , annexe 1 (last page) is pretty useful to hand to subs if they will follow it/insist on getting answers. They in effect ask the questions and the party above them in the chain tells the answers.

https://www.gov.uk/government/publications/vat-reverse-charge-for-buildi...

Thanks (0)
Replying to lionofludesch:
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By CWservices6064
01st Sep 2019 11:23

My clients supply includes standard rated goods albeit a relatively low % on the overall plot cost so I was looking at it from a cashflow point of view if the reverse charge applied.

The clients year end accountants have been taken over by a top 20 firm so we are awaiting their thoughts.

Thanks (0)
Hallerud at Easter
By DJKL
31st Aug 2019 17:08

See BDO

"The domestic reverse charge will apply to specified services unless:

The services are supplied to an end user, such as the property owner, or directly to a main contractor that sells or lets a newly completed building

The recipient makes onward supplies of those 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 or vice versa, or

The supplies are zero-rated."

https://www.bdo.co.uk/en-gb/insights/tax/vat-and-indirect-taxes/domestic...

Thanks (0)
Replying to DJKL:
RLI
By lionofludesch
31st Aug 2019 17:27

On the other hand ....

"Examples of end users include UK VAT registered mainstream or deemed contractors under CIS rules. They are typically not construction businesses and are found in the retail, manufacturing, utilities and property investment sectors as well as public bodies."

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and...

Thanks (0)
Replying to lionofludesch:
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By johnhemming
31st Aug 2019 19:19

If we look at Taylor Wimpey UK (one of the subsidiaries)
https://beta.companieshouse.gov.uk/company/01392762

It is not a construction business, because it does not sell construction services. Its SIC is:
41100 - Development of building projects

I think that would be accurately described as investing in property.

Thanks (0)
Replying to johnhemming:
Hallerud at Easter
By DJKL
31st Aug 2019 19:30

I would have said it is a builder which sells completed, mainly new build, houses that are normally a zero rated supply, so outwith the reverse charge.

It is surely only investing in property if it retains the houses and frankly TW would be mad with residential if they retained houses within the same beast that developed them given the possible issues with leasing residential, exempt supplies and partial exemption recovery issues.

Thanks (0)
Replying to DJKL:
Psycho
By Wilson Philips
31st Aug 2019 19:45

I agree, with one small observation. The fact that zero-rated houses are being sold doesn’t necessarily take supplies outside the provisions. In practice most of them will be but what is relevant is the status of the subbies’ supplies and not necessarily the status of the end-product.

Thanks (0)
Replying to DJKL:
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By johnhemming
31st Aug 2019 19:59

Whereas I would not say you are certainly wrong I would think that TW buy land as an investment, they make a further investment in paying people to build property and then they sell it.

Such companies tend to invest in a landbank and hold the land for a period of time.

Thanks (0)
Replying to johnhemming:
Hallerud at Easter
By DJKL
31st Aug 2019 20:58

Land bank normally held in stock and carried at the lower of cost and NRV.

The fact that say a phone maker carries 10 million chips in stock, to cover future production, and they may or may not go up in value, does not make them investments. One has to look at purpose/motive, the purpose is not to buy and merely hold to resell the land the purpose is to buy and when they consider it appropriate add a lot of labour and materials to create a new asset to sell.

As a housebuilder's business is making these new assets to sell it is not passive holding, investment, it is trading. (And hard work)

The fact the landbank may well go up in value and boost eventual margins is a bonus .

Thanks (0)
Replying to johnhemming:
Psycho
By Wilson Philips
31st Aug 2019 19:41

I’m not sure that I’d agree that investment would be an accurate description of the company’s activity - it’s clearly a trading company. But I certainly see a distinction between development and construction.

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Replying to Wilson Philips:
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By johnhemming
31st Aug 2019 20:05

The odd thing about language in a legal context is that the same phrase can have different meanings depending upon the purpose and we don't have the original source statutory instrument or whatever whereby this change is implemented.

I think, however, I could happily agree that they are development companies rather than construction companies.

Thanks (0)
Replying to johnhemming:
Psycho
By Wilson Philips
31st Aug 2019 20:19

“Investment activity” has a particular meaning in the accountancy and tax world, and since this is an accountancy and tax forum...

Thanks (0)
Replying to Wilson Philips:
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By johnhemming
31st Aug 2019 21:09

The strict question here, however, is whether the government in writing the web page referred to include the developers in the category of "property investment sectors".
https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and...

Obviously REITs are in a property investment sector.

However, if you look at the BPF
https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

"The British Property Federation (BPF) is the trade association for the large-scale property investment sector."
"Our members comprise a broad range of owners, managers and developers of real estate, as well as those
who support them."

I think it is reasonable to say that developers are part of a property investment sector.

I accept entirely that a limited company can be an investment company.

Hence this is a good example where the same word is being used with different meanings within the same broad context. (ie tax and accounting)

Thanks (0)
Replying to johnhemming:
Psycho
By Wilson Philips
31st Aug 2019 21:35

The wording in HMRC’s guidance linked to fairly clearly indicates that they do not consider developers to be included in the investment sectors. The BPF wording is in my view a very broad generalisation and doesn’t change the fact that for accountants and tax advisers (and HMRC) “investment” has a particular meaning.

It is perhaps telling that the balance sheet of the company in question shows no investment assets (other than investments in its subsidiaries).

Thanks (0)
Replying to Wilson Philips:
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By johnhemming
31st Aug 2019 21:46

I think you are referring to this:
"They are typically not construction businesses and are found in the retail, manufacturing, utilities and property investment sectors as well as public bodies. Property developers should also be end users in cases where they do not make onward supplies of building or construction services."

I think you have an arguable case because of the second sentence.

However, because HMRC refer to "property investment sectors". I think that is more than just REITs and includes all the property investment sectors defined by the BPF.

However, it doesn't really matter for all the reasons in this thread and I will say good night to all.

Thanks (0)
Replying to johnhemming:
Psycho
By Wilson Philips
01st Sep 2019 11:02

Once you have woken up, you (and others involved in the discussion) may want to read the article in the September issue of Tax Adviser, if you have access to it.

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Psycho
By Wilson Philips
31st Aug 2019 18:22

There is scope for widespread confusion.

Let's say I have a piece of land and engage a local building firm to build an office for me, using his own staff as well as the services of subbies. The building firm is clearly supplying construction services to me and so I am the end-user, so the reverse charge will apply to the subbies' services.

But what if the building firm, using the same subbies, constructs an identical office on a piece of land that it owns, with a view to selling it on the market? In that case, it is selling a completed asset and not making an onward supply of its own or its subbies' services. So the reverse charge would not apply - there are going to be some very confused subbies around.

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RLI
By lionofludesch
01st Sep 2019 10:05

As I see it, there's a significant body of opinion that a Taylor Wimpey type company, selling houses to happy couples, is an end user.

Most chains are of the form Subcontractor > Builder > Customer. If the builder is an end user, there is no Domestic Reverse Charge here.

Less common is the Subcontractor > Gangmaster > Builder > Customer chain. Here only the subcontractor-gangmaster supply is subject to the DRC.

I reckon this will account for about 10.8% of the subcontractor supplies.

Which begs the question - why bother to introduce the new rules ?

Thanks (0)
Replying to lionofludesch:
Psycho
By Wilson Philips
01st Sep 2019 10:20

I take the point, but as noted above the new rules are likely to be more or less irrelevant as far as new build housing is concerned. Where the new rules are going to bite significantly is in the commercial construction sector, where it is more likely that the top contractor is making a supply of building services to the developer.

Thanks (0)
avatar
By CWservices6064
02nd Sep 2019 14:47

Hello,

I thought I should update all on the feedback from my clients top 20 firm of accountants.

They consider a property developer who goes on to sell the houses to be an 'end user' as they are making an onward supply of property and not building services.

Thanks (1)
Replying to CWservices6064:
RLI
By lionofludesch
02nd Sep 2019 14:56

CWservices6064 wrote:

Hello,

I thought I should update all on the feedback from my clients top 20 firm of accountants.

They consider a property developer who goes on to sell the houses to be an 'end user' as they are making an onward supply of property and not building services.

Yeah - but if they're selling houses, they'll be zero rated so the rules won't apply anyway.

We'd be looking at two main situations.

1. Sale of commercial buildings, which may well not fall under the new rules.

2.. Domestic alterations, which are building services imho.

Thanks (1)
Replying to lionofludesch:
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By CWservices6064
02nd Sep 2019 15:07

Thanks,

I was looking at it from my clients point of view.

They have a mixed supply including VATable appliances etc.

Whilst the VAT element is relatively small per each plot the reverse charge, if applicable, would have impacted cashflow to some extent.

Thanks (0)
Replying to CWservices6064:
RLI
By lionofludesch
02nd Sep 2019 15:15

You reckon the appliances are "building services" ?

My point was that a ground up zero rated house isn't a great example as the rules were never going to apply.

Thanks (1)
Replying to lionofludesch:
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By CWservices6064
02nd Sep 2019 15:38

Your initial point was about Taylor Wimpey and cooking..........'Taylor Wimpey are, therefore not the end user...............I'm not seeing the difficulty in interpretation here, yet this has been asked more than once'.

Are you now saying Taylor Wimpey are the end user?

Thanks (0)
Replying to CWservices6064:
RLI
By lionofludesch
02nd Sep 2019 15:44

To some extent, I'm standing corrected as to whether the sale of a property is a building service or property development.

But can a worker not cook his lunch in the office ??

Thanks (1)
Replying to lionofludesch:
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By CWservices6064
02nd Sep 2019 15:50

Not in my office.

Thanks for taking the time to look at this, much a appreciated.

Thanks (0)
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By The Dullard
02nd Sep 2019 16:31

The legislation is in VATA 1994, s 55A and SI 2019/892 here: http://www.legislation.gov.uk/uksi/2019/892/contents/made

Q1 Am I making a supply of specified services, that is not an excepted supply?
Q2 Is my supply either lower-rated or standard-rated?
Q3 Is the person to whom I am making my supply going to make an onward supply of relevant services?

None of it seems difficult.

Thanks (0)
Replying to The Dullard:
Psycho
By Wilson Philips
02nd Sep 2019 16:36

In terms of interpretation I agree - not too difficult. But take the example of the electrician who is hired by the contractor to work on the two offices in my example above. He's going to have to make sure that he asks Q3.

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Replying to Wilson Philips:
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By The Dullard
02nd Sep 2019 17:04

Indeed. In fact that's what the queried guidance appears to be suggesting that he or she does.

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Replying to The Dullard:
RLI
By lionofludesch
02nd Sep 2019 16:46

The Dullard wrote:

None of it seems difficult.

Not once you've established what "specified services", "excepted supplies" and "relevant services" are.

Thanks (0)
Replying to lionofludesch:
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By The Dullard
02nd Sep 2019 16:59

Well, if you find reading a challenge maybe you should consider a new career in shelf stacking?

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Replying to The Dullard:
RLI
By lionofludesch
02nd Sep 2019 17:03

I already have a job lined up as a Government Artist - drawing my pension.

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Replying to lionofludesch:
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By The Dullard
02nd Sep 2019 17:05

I'm sure you'll do your stint as a checkout granddad.

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Replying to The Dullard:
RLI
By lionofludesch
02nd Sep 2019 17:27

[chuckle]

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Replying to The Dullard:
Hallerud at Easter
By DJKL
03rd Sep 2019 09:35

Ohhhh we used to DREAM of being a checkout granddad. Woulda' been a dream job to us. We used to work in an accountancy office with toxic clients. We got woken up every morning by having a load of books and records dumped all over us! Asda, Lidl, Hmph:- Luxury.

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Replying to DJKL:
RLI
By lionofludesch
03rd Sep 2019 09:43

I might be old. But I'm not a grandad.

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