On Monday 1st March 2021, the VAT reverse charge will come into effect, impacting the day-to-day operations of organisations operating within the construction industry across the United Kingdom.

Whether you are looking to uncover what the VAT reverse charge is, why it has been implemented or the services it will be applied to, we have provided all of the information you may need in this VAT reverse charge guide.

 

What Is The VAT Reverse Charge?

Introduced by the British Government to mitigate fraud in the construction sector, the VAT reverse charge is a new set of rules that will come into effect on 1st March 2021.

Across the United Kingdom, fraud in the construction industry has soared in recent years.  As one of the largest sectors operating in the United Kingdom, fraud has seen substantial amounts of money lost.

As the VAT reverse charge comes into effect, it will essentially alter how VAT is paid within the construction industry.  No longer will the supplier be responsible for ensuring that VAT is paid to HMRC.  Instead, the end-consumer will be required to pay VAT on any construction services provided to them.

 

Who Does The VAT Reverse Charge Apply To?

As previously touched on, the VAT reverse charge will ultimately impact organisations operating within the construction sector, and their end-consumers.

However, it should be noted that HMRC has stated that the VAT reverse charge will only apply to the following;

  • Organisations that operate within the United Kingdom.
  • Organisations or individuals who operate within the construction industry and are registered for VAT in the United Kingdom.
  • Organisations that are registered as a contractor or sub-contractor within the Construction Industry Scheme.

In addition to the above, the VAT reverse charge will only apply if the end-consumer is VAT registered and registered for the Construction Industry Scheme.

Irrespective of whether you are registered for VAT and the Construction Industry Scheme, if your end-consumer is not, the standard VAT rules will apply.  This will see you, the supplier, responsible for ensuring that VAT is paid to HMRC.

 

What Services Does The VAT Reverse Charge Apply To?

Although the VAT reverse charges will typically apply to organisations and individuals that are registered for VAT, operate in the United Kingdom and are registered for the Construction Industry Scheme, it should be noted that the VAT reverse charge will only apply to specific services.

Below, we have outlined just a number of the services that the VAT reverse charge will apply to.

  • Construction work such as building work, repairs and demolition
  • Installation of heating, lighting, power and water systems
  • Groundwork construction
  • Civil engineering
  • Decorating internal and external buildings and structures
  • Scaffolding and site restoration

If you would like to uncover the full list of services that the VAT reverse charge will apply to, you can do so here.

 

Who Does The VAT Reverse Charge Not Apply To?

As outlined above, the VAT reverse charge does not apply to organisations within the construction sector if the end-consumer is not registered for VAT or the Construction Industry Scheme.

In addition, the VAT reverse charge does not apply when the end-consumer requires the services for domestic purposes.

 

What Services Does The VAT Reverse Charge Not Apply To?

In addition to not applying to organisations where end-consumers are not registered for VAT or the Construction Industry Scheme, the VAT reverse charge will not apply to several construction services.

These services include, but are not limited to;

  • Work supplied by architects or surveyors
  • Work provided by landscape gardeners
  • Extraction of oils, natural gases and minerals
  • Underground work
  • Supplying materials to contractors, sub-contractors and end-consumers
  • Manufacturing of heating, lighting, air-conditioning and water supplies
  • Restoration of artwork
  • Installation of signs and billboards
  • Installation of security cameras, CCTV and alarms

If you provide any of the above services to your end-consumer, the standard VAT rules will apply.

For a full list of the services that the VAT reverse charge does not apply to, visit the HMRC website here.

 

Where Will The VAT Reverse Charge Be Applied?

The VAT reverse charge will be applied as and when organisations within the construction industry provide end-consumers with an invoice for the services provided.

Instead of applying additional costs to the services’ total cost to ensure that VAT is considered, the end-consumer will be responsible for ensuring that any VAT charges are covered.  This will essentially mean that contractors and sub-contractors will only invoice end-consumers for the services carried out.

However, in the instance that the VAT reverse charge is not applicable, the supplier remains responsible for ensuring that VAT costs are implemented into the total cost of the services.  The supplier will then be responsible for ensuring that VAT is paid to HMRC.

 

What Does This Mean For Organisations and Individuals Operating Within The Construction Industry?

If you own an organisation that operates within the construction industry, you must adhere to the VAT reverse charge.

You will be responsible for ensuring that the VAT reverse charge is applied correctly, and you must also ensure that your end-consumer is aware that the VAT reverse charge will be applied.

If the VAT reverse charge is misapplied, the supplier will be responsible for ensuring that any VAT on services provided to the end-consumer is paid to HMRC promptly.

 

Contact Us To Discuss Our VAT Reverse Charge Guide and Seek Our Support

At The Financial Management Centre, we support organisations and individuals operating within the construction industry with our accountancy and bookkeeping services

If you have read our VAT reverse charge guide, yet would like to seek professional support and assistance, we can offer just that.

From helping you determine whether the VAT reverse charges apply to the services you provide, to ensuring that any VAT reverse charges are applied correctly, our accountants can cater to your needs.

Should you wish to discuss how the new VAT reverse charge will impact your day-to-day operations, please call us today on 0333 202 7198.

Likewise, if you would like to take advantage of the accountancy services we provide, please feel free to contact us.

 

Sources

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

John Stolliday
John Stolliday

John Stolliday runs The Financial Management Centre in Luton East. John is a qualified accountant (FCCA) and bookkeeper (MICB) with UK and Middle East experience in the construction and building services sectors, handling company turnovers up to £100m and staff of 15. John has held senior roles, up to board level, in civil engineering, industrial engineering, pipelines, general building and building maintenance companies.