Reverse charge for VAT on construction now due in 2021

Another piece of legislation to be delayed due to coronavirus is the reverse VAT charge for construction services. 

Introduced in the 2018 Budget, the Domestic reverse VAT charge for building and construction services was originally planned to take effect in October 2019. In late 2019 it was announced that implementation was to be postponed by a year. Most recently, the government has advised a further five-month delay with introduction now due 1 March 2021.

What is the Reverse charge for VAT on construction?

The reverse charge is a major change to the way that VAT is collected in the building and construction industry. This anti-fraud measure will see the customer who is receiving the service paying the VAT due instead of the customer paying the supplier as is currently the case. It will only apply to individuals or businesses registered for VAT in the UK who supply or receive specified services that are reported under the Construction Industry Scheme (CIS).

How will it work?

The legislation will only apply to construction businesses which make a further supply of building services, and not to end users (customers). The key points are:

• The main contractor will account for the VAT on any services of a subcontractor
• The supplier (subcontractor) does not invoice for VAT
• The main contractor shows the supplier’s VAT as both output and input tax on its VAT return

Who will be affected?

Those affected will be builders, contractors and trades associated with the building industry including those involved in construction, alteration, repairs, demolition, installation of utilities systems, erection of scaffolding and civil engineering works (including site clearance, excavation etc.). Excluded are professional services, consultancy, decoration, and landscaping.

The government’s guidance about the VAT domestic reverse charge for building and construction services, can be viewed here.