VAT reverse charge will apply to standard and reduced-rate supplies of building and construction services made to VAT registered businesses, who in turn also make onward supplies of those building and construction services.
From 1 March 2021, You must use the reverse charge if you’re 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 rated
- 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 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
When you should use the reverse charge: –
You must use the reverse charge for the following services:
- constructing, altering, repairing, extending, demolishing
- altering, repairing, extending, roadworks, power lines, electronic communications equipment, aircraft runways, railways,
- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
- internal cleaning of buildings and structures,
- painting or decorating the inside or the external surfaces of any building or structure
How to use the VAT reverse charge if you supply building and construction services: –
What you’ll need to do:
- Check if your customer has a valid VAT number
- Check your customer’s CIS registration.
- Review your contracts to decide if the reverse charge will apply, and tell your customers
- Ask your customer to confirm whether they are an end-user or intermediary supplier
- Find out how to record the reverse charge in your accounts
VAT Responsibilities: –
If you’re a subcontractor, VAT is not charged on the sales invoice, although you do have to specify the VAT value and account for reverse charge VAT and that the reverse charge rules are applied.
If you’re a contractor, as the business buying the goods or services, you record the reverse charge VAT when you receive the purchase invoice, and the VAT is declared as both a sale and purchase on your VAT return.
End users and Intermediary supplier businesses
End Users: –
For reverse charge purposes, consumers and final customers are called end-users. The reverse charge does not apply to supplies to end-users where the end-user tells their supplier or building contractor in writing that they’re an end-user.
Intermediary suppliers: –
Intermediary suppliers are VAT and Construction Industry Scheme registered businesses that are connected or linked to end users. If intermediary suppliers buy construction services and re-supply them to a connected or linked end user, without making material alterations to the supplies, they’re all treated as if they’re end-users, and the reverse charge does not apply.
Design and build companies as intermediary suppliers: –
A design and build company can be a connected party or linked to an end-user and therefore, normal VAT rules would apply to supplies bought in. If the design and build company is not a connected party or linked to an end-user, it will not be regarded as an intermediary supplier. Therefore, the reverse charge will apply to construction services bought in for onward supply.