VAT Reverse Charge for The Construction Industry

From 1st March 2021 HMRC is introducing the VAT domestic reverse charge for building and construction services. From this date onwards businesses who provide construction services within the CIS scheme will be affected.

VAT will no longer be paid to businesses providing construction services unless they are providing the services directly to the end user: instead, the responsibility for paying VAT to HMRC will lie with the receiver of the construction service.

The government state that: –

“You must use the reverse charge from 1 March 2021, if you are VAT registered in the UK, supply building and construction industry services and:

  • Your customer is registered for VAT in the UK
  • Payment for the supply is reported within the construction industry scheme (CIS)
  • The services you supply are standard or reduced rate
  • You’re not an employment business supplying either staff or workers, or both
  • Your customer has not given written confirmation that they are an end user or intermediary supplier”

The reverse charge will also apply if your business is VAT registered, receives building and construction industry services and:

  • Payment for the supply is reported within the CIS scheme
  • The supply is standard or reduced rate
  • You have not confirmed that you are an end user
  • The supply is not made by an employment business

Points to consider: –

  • Will the reverse charge affect your sales and or purchases?
  • Are your accounting systems able to both adequately apply and record the reverse charge?
  • What additional training staff will require to implement the new system.
  • How to manage the changes to your business cash flow.

HMRC have issued a technical guide which provides more detailed information about the VAT reverse charge and includes easy to use flow charts to help with the understanding of this complex legislation.

Disclaimer: The information in this article is provided for general information only and does not constitute legal or professional advice.  We cannot accept responsibility or liability for any actions you may take, or not take, based on this information.