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From 1 March 2021, the domestic VAT reverse charge must be used for most supplies of building and construction services. The change to the way VAT is reported and paid is covered in full in this article,  including how the reverse VAT charge works, to whom it applies, and what you can do to get more support.

The move comes as HMRC tries to reduce fraud. The charge applies to standard and reduced-rate VAT services for both individuals or businesses who are registered for VAT in the UK and reported within the Construction Industry Scheme (CIS), legislation now prescribes that the customer will be responsible for reporting and account for the VAT to the HMRC, rather than the supplier.

Individuals and business who meet the criteria should;

You must use the reverse charge for 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

You’ll need to:

  • make sure your accounting systems and software can deal with the reverse charge – you can speak to the FoxKash experts for help with the changes
  • consider whether the change will impact your cash flow
  • make sure all your staff who are 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. HMRC also have flowcharts to help you decide if you need to use the reverse charge.

The HMRC website has simple flowcharts you can use to determine if the new charge will apply when you are buying and supplying services – the charge works differently depending on whether you are supplying or buying services.

If you sell building and construction services the reverse charge will need to be used when; your customer is registered for VAT in the UK, payment for the supply is reported within the Construction Industry Scheme, you’re not an employment business supplying either staff or workers, or both and finally, your customer has not given written confirmation that they’re an end-user or intermediary supplier.

If you buy building and construction services the reverse charge will need to be used when; payment for the supply is reported within the Construction Industry Scheme (CIS), the supply is standard or reduced rated, are not hiring either staff or workers, or both and you’re not using the end-user or intermediary exclusions.

Full details can be found on the Government website.

FoxKash offers cloud accounting and bookkeeping support for busy business owners – FoxKash is a new, independent service from Foxley Kingham designed to give our clients expert online bookkeeping support. Sitting alongside our established offering, FoxKash is a standalone business with its own fee structure that offers expert online accounting at an affordable price.

Get in touch today to speak to our experts.