VAT: Domestic Reverse Charge For Building & Construction Services

The VAT reverse charge is coming into effect on the 1st of March 2021 with the main aim of combating VAT fraud. It applies to businesses registered for VAT that are within the Construction Industry Scheme (CIS) and offer services at standard or reduced VAT rate but not zero-rate.

How the Charge Works

Suppliers providing services to customers do not have to handle and pay the VAT as this is being passed on to the customer. Meaning the customer should account for both input and output VAT on their VAT return and not pass on the VAT payment to the supplier.

When supplying a service, the supplier must put a note on the invoice stating that the invoice is subject to reverse charge however, no VAT should be charged on the invoice. The invoice should however indicate how much VAT is due.

For example: Peter the gas engineer installs some boilers in a block of flats for Tom the builder. Under the old VAT system, Peter would charge Tom £50,000 plus 20% VAT, he would therefore collect £60,000 from Tom and account for the output VAT on his VAT return. Under reverse charge Peter would collect £50,000. Peter will not have to account for output VAT as Tom will be accounting for the output VAT on his VAT return.

The CIS reverse charge does not apply to non-VAT registered users, the supply of staff or workers, and end users. If the customer is an end user, they must provide a written confirmation that they are one, as in that case, the normal VAT rules will apply.

Services within the VAT reverse charge:
Services external to the VAT reverse charge:

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