VAT Reverse Charge on Construction and Building Services
VAT registered construction businesses should note that this reverse charge, which was explained in a Revenue and Customs Brief issued in June 2020 came into effect on 1 March 2021.
In January 2021, a letter was sent to every VAT-registered construction business. This followed letters previously sent out in February 2020 and September 2020, advising them to check if they’re liable for the reverse charge. If they’re liable, they need to apply these rules going forward.
Find more information on the scope and operation of the reverse charge.
The key aspects are:
- it applies to standard and reduced-rated supplies of building and construction services made to VAT registered businesses, who in turn also make onward supplies of those building and construction services
- the contractor is responsible for paying the output VAT due rather than the sub-contractor, and can continue to reclaim this amount as input tax
- the scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme (CIS), but does not include supplies of staff or workers for use by the customer
- the legislation introduces the concept of ‘end users’ and ‘intermediary suppliers’
This covers businesses or groups of associated businesses that do not make supplies of building and construction services to third parties and, as such, are excluded from the scope of the reverse charge if they receive such supplies. Examples include:
- property developers
- public bodies who are deemed contractors for CIS purposes
In order to be treated as end users and intermediary suppliers, the customer needs to notify the supplier in writing. This can be done by correspondence or as part of terms and conditions. There is more detail in the VAT reverse charge technical guide.
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