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Last edited 10 Nov 2021
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 June 2018, the government launched a consultation on the introduction of a VAT reverse charge for construction services to tackle fraud in the construction industry. This was originally intended to come into effect on 1 October 2019, however following lobbying it did not actually come into effect until 1 March 2021
- 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).
- 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.
More information about the reverse charge can be found at: https://www.gov.uk/guidance/vat-reverse-charge-technical-guide
Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019.
To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.
In June 2020 the Government delayed the introduction of reverse charge VAT by a further five months until 1 March 2021 due to the Coronavirus pandemic. Despite continued lobbying to push back this date further, the reverse charge was introduced on 1 March 2021.
Andy Mitchell, chairman of the Construction Leadership Council said: “The implementation of Reverse charge VAT will restrict cashflow in our industry, especially to the smallest firms, at an extremely critical financial period for many businesses. This policy risks reversing any recovery industry has made from Covid-19 and will limit the scope for protecting and creating jobs across the UK.”
In Novermber 2021, subcontractors complained that they were waiting too long to to receive VAT repayments. An HMRC spokesperson said: “HMRC aim to make VAT repayments within 30 calendar days of receiving a return. In most cases claims are paid within five working days of receipt of the return. However, if we select it for verification checks, this could take 30 days or longer, dependent upon how long it takes the customer to provide the information requested to verify the return.”
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