VAT reverse charge for construction services

VAT reverse charge for construction services

From 1 October 2020, a domestic reverse charge will apply to construction services in the UK, in response to organised criminal attacks on the VAT system in the construction sector.

The domestic reverse charge will apply to supplies taxable at the standard or reduced rates where payments are required to be reported via the Construction Industry Scheme (CIS).

Therefore, supplies between sub-contractors and contractors as defined by CIS will be subject to the reverse charge unless they are supplied to a contractor who is an end user. End users will usually be recipients who use the building or construction services for themselves, rather than sell the services on as part of their business of providing building or construction services.

What supplies are included?

The new domestic reverse charge will apply to B2B supplies of those services between VAT registered businesses where the recipient then makes an onward supply of the same construction services.

Construction services included in the reverse charge include:

  • Construction, alteration, repair, extension, demolition or dismantling of buildings or structures
  • Installation in any building or structure of systems of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection
  • Painting or decorating the internal or external surfaces of any building or structure

What next?

The first period affected by the VAT reverse charge is starting soon and businesses should ensure they are prepared for the changes. Whilst HMRC has indicated it will be lenient for the first few months with respect to genuine errors, we are urging businesses to get to grip with the new rules and practise good VAT housekeeping from the start.

If you would like help understanding how the changes affect your business and what your obligations are, please email [email protected] or call 01527 558539.

Further information on our tax services can be found here. HMRC guidance on the VAT reverse charge.

VAT reverse charge

VAT reverse charge