domestic reverse charge for the construction

Domestic Reverse VAT Charge for Construction

The domestic reverse charge for the construction and building sectors will now come into force on 1 March 2021, and not 1 October 2020, HMRC has announced.

This is the second time the Revenue has pushed back the date of the scheme, which means in future the customer receiving the service will have to pay the VAT due to HMRC instead of paying the supplier.

It will only apply to individuals or businesses registered for VAT in the UK and it will not apply to consumers.

The legislation will affect anyone who supply or receive specified services that are reported under the Construction Industry Scheme.

Be ready for the changes

You need to prepare for the 1 March 2021 introduction date by:

  • checking whether the reverse charge affects either a client’s sales, purchases or both.
  • making sure their accounting systems and software are updated to deal with the reverse charge.
  • considering whether the change will have an impact on cashflow.
  • making sure all staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate.

What contractors need to do

Contractors will also need to review all their contracts with sub-contractors, to decide if the reverse charge will apply to the services they receive under these contracts. They need to notify all suppliers if it will.

What sub-contractors need to do

Sub-contractor need to contact customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.

Linda Skilbeck, Vice Chair of the Chartered Institute of Taxation, said:

“We welcome the further delay to the implementation of the domestic reverse charge for construction services to 1 March 2021 because of the many unexpected pressures caused by the pandemic and the lockdown on construction businesses, of which a significant proportion are SMEs. The cash flow effect of the domestic reverse charge will be significant, and this is compounded by the added effect of reduced business activity due to COVID-19 restrictions.”

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