From 1 March 2021 the domestic VAT reverse charge must be used for most supplies of building and construction services. This was due to commence last October but has been delayed twice due to Brexit and the Coronavirus.
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
If the VAT reverse charge does not apply you should follow the normal VAT rules.
Apply the reverse charge when all the following are met:
- The supply for VAT consists of construction services and materials
- It is made at a standard or reduced-rate of VAT
- Between a UK VAT registered supplier and UK VAT registered customer
- Supplier and customer are registered for CIS
- The customer intends to make an ongoing supply of construction services to another party
- The supplier and customer are not connected.
The CIS reverse charge does not apply to any of the following supplies:
- Supplies of VAT exempt building and construction services
- Supplies that are not covered by the CIS, unless linked to such a supply
- Supplies of staff or workers.
The CIS reverse charge does not apply to taxable supplies made to the following customers:
- A non-VAT registered customer.
- ‘End Users’ i.e. a VAT registered customer who is not intending to make further on-going supplies of construction.
- ‘Intermediary suppliers’ who are connected e.g. a landlord and his tenant or two companies in the same group.
The aim of the measure is to reduce VAT fraud in the construction sector. It will require a significant change of approach in many CIS businesses: Staff will need to be trained and cccounting and bookkeeping systems modified, as well as impacts on cash flow taken into consideration.
You may need further assistance on this, so please contact us.