Domestic VAT reverse charge on building and construction

Calling all companies in the construction industry!

If you are in the construction industry, you need to be aware of changes to the domestic VAT reverse charge. From the 1st March 2021, the domestic VAT reverse charge must be used for most supplies of building and construction services.

 

The charge applies to standard and reduced-rate VAT services:

 

  • For individuals or businesses who are registered for VAT in the UK
  • Reported within the Construction Industry Scheme

 

This change was originally meant to be in October 2020 but has now been pushed back to 1st March 2021, giving you more time to get prepared.

 

In September, every VAT registered construction business received an individual letter advising them to check if they might be liable for the reverse charge.

 

Key details include:

 

  • It will apply to standard and reduced-rated supplies of building and construction services made to VAT registered businesses, who in turn also make onward supplies of those building and construction services
  • The contractor will be responsible for paying the output VAT due rather than the sub-contractor but can continue to reclaim this amount as input tax
  • The scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme but does not include supplies of staff or workers for use by the customer

 

How you can get prepared?

 

If the charge applies to you, you need to prepare:

  • Make sure your accounting systems and software can deal with the charge
  • Consider whether the change will impact your cash flow
  • Make sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work

 

If the VAT reverse charge does not apply you should follow the normal VAT rules.

 

HMRC have provided lots of helpful information including a checklist to work out how the reverse charge works for supplying services and for buying services, and flowcharts to decide if you need to use it. For more information and to check if you need to use the service click here.

 

VAT can be a minefield, so if you need to talk it through or clarify how it may impact your business, please do get in touch with our team on 01952 882434 to see how we can assist you.