After being delayed twice due to COVID and Brexit, the construction industry reverse charge comes into effect on the 1st of March 2021. Reverse charge schemes have already been used in sectors such as computer chip retailers, wholesale energy suppliers and mobile phone sellers.
However the reverse charge is about to come into effect in order to tackle VAT fraud in the building and construction sector where instead of paying the output VAT to HMRC, fraudsters closed their businesses and ran away with the VAT collected from customers. But from now on the VAT will not flow around the supply chain and the payment will go straight to HMRC. VAT will be paid only by individuals or end customers who are purchasing construction services or materials.
How do you know if the VAT reverse charge applies to you ? The reverse charge only applies when the two parties are VAT and CIS (Construction Industry Scheme) registered and when the supplier and the customer are not connected businesses. The supply also has to be the standard rate or reduced rate, but not zero rated.
Here is a list of some of the more common services that come under the VAT reverse charge :
- Building, repairing, altering, extending or demolishing any permanent or non-permanent structure.
- The installations of any buildings or structure of lighting, heating or air conditioning.
- Cleaning of buildings and structures as part of a construction, repair, extension, alteration or restoration project.