VAT reverse charge

Value Added Tax (VAT) is a tax added to the cost of certain goods and services. It is only accountable where the party raising an invoice is VAT-registered. Parties must register if their VAT-able turnover exceeds a minimum threshold in any 12-month period.

The government announced that from 1 October 2019, a domestic VAT reverse charge would come into effect to tackle fraud in the construction industry. A reverse charge enables a customer to charge themselves VAT rather than the supplier charging it. This removes any opportunity for the supplier not to pay HMRC (missing trader fraud).

The reverse charge will apply to businesses that supply services to another business that will then sell on that service, but not those that supply services to consumers.

Sometimes referred to as the domestic reverse charge is intended to apply only to supplies of specified construction services which are subject to the standard and reduced rate of VAT, which include:

• Construction, alteration, repair, extension, demolition or dismantling of buildings, structures, non-permanent structures, offshore installations, works forming part of land (i.e. walls, runways, docks, railways, pipelines, etc.).
• Installation of systems such as heating, lighting, air-conditioning, ventilation, drainage, and so on.
• Internal cleaning of buildings and structures.
• Painting and decorating.
• Services which are an integral part of preparing or completing those above (e.g. site clearance, excavation, scaffolding erection, landscaping, and so on).

Services and supplies that will be excluded from the reverse charge include:

• Drilling and extraction of oil, natural gas, and minerals.
• Tunnelling and boring for underground works.
• Manufacture of building or engineering components and machinery.
• Signage and advertisements.
• Installation of seating, blinds, shutters, etc.
• Installation of security systems and alarms.

Ref https://www.gov.uk/government/consultations/draft-legislation-vat-reverse-charge-for-construction-services

In July 2019, the Federation of Master Builders called for a six-month delay following research that found more than two thirds of construction SMEs had not even heard of the reverse charge.

In September 2019, following strong lobbying by the construction industry the government announced that the reverse charge would not be introduced until 1 October 2020, stating:

Ref https://www.gov.uk/government/publications/revenue-and-customs-brief-10-2019-domestic-reverse-charge-vat-for-construction-services-delay-in-implementation/revenue-and-customs-brief-10-2019-domestic-reverse-charge-vat-for-construction-services-delay-in-implementation

In June 2020 the Government delayed the introduction of reverse charge VAT by a further five months due to the Coronavirus pandemic. It will now be introduced on 1 March 2021.

[edit] Related articles on Designing Buildings Wiki

• Business rates.
• Capital gains tax.
• Construction invoice fraud.
• Construction VAT.
• Invoice.
• Limitation of action.
• Suppliers.
• Supply chain management.
• VAT - Option to tax.
• VAT - Protected Buildings.