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WHAT IS THE VAT REVERSE CHARGE AND HOW WILL IT IMPACT CONSTRUCTION?

Wed 27th Jan 2021
On 1st March 2021, the government will introduce new VAT rules for building contractors and subcontractors. These changes were originally expected to be introduced in October 2019, but were delayed due to various factors, including the impact of the pandemic on the construction sector.

We have put together a brief overview of the new regulations below, to help you prepare your business for the upcoming changes to the construction industry.

What Is The VAT Reverse Charge?

The new rules will make the supply of most construction services between construction or building businesses subject to the domestic reverse charge. This is part of a government effort to reduce missing trader fraud (suppliers declaring paid VAT charges as “missing” to HMRC).

This means that from 1st March 2021, subcontractors will no longer add VAT to their supplies to most building customers, instead contractors will be obliged to pay the deemed output VAT on behalf of their registered suppliers. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

What Services Does The VAT Reverse Charge Cover?

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

The reverse charge will apply to the following services:

• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
• 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, so far as carried out in the course of
their construction, alteration, repair, extension or restoration
• painting or decorating the inside or the external surfaces of any building or
structure
• services which form an integral part of, or are part of the preparation or
completion of the services described above - including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of
scaffolding, site restoration, landscaping and the provision of roadways and other access works

How Your Business Can Prepare

You can start to prepare for the introduction of VAT reverse charges by:

• Making sure your accounting systems and software can deal with the reverse charge
• Considering how the change will impact your cash flow
• Ensuring all staff responsible for VAT accounting are familiar with the reverse charge and how it will work

If the VAT reverse charge does not apply you should follow the normal VAT rules. There are also flowcharts available to help you decide if you need to use the reverse charge.

Please get in touch here or give us a call on (0)333 222 5676 if you would like more information on this new scheme.

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