VAT reverse charge for construction services’

The VAT domestic reverse charge for construction services starts on 1 March 2021.

 

It’sa major change to the way VAT is collected in the construction industry.

 

The reverse charge will affect you if both:

• you’re registered for VAT
• you supply or receive services under the Construction Industry Scheme (usually known as CIS)

 

Where the reverse charge applies, the customer pays the VAT due directly to HMRC instead of paying it to their supplier.

 

 

When you must use the VAT reverse charge for building and construction services

–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

When you not use the reverse charge

Do not use the charge for the following services, when supplied on their own:

• drilling for, or extracting, oil or natural gas
• extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
• manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
• manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
• the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
• making, installing and repairing art works such as sculptures, murals and other items that are purely artistic signwriting and erecting, installing and repairing signboards and advertisements
• installing seating, blinds and shutters
• installing security systems, including burglar alarms, closed circuit television and public address systems
• Working with private clients

Zero rate VAT

You may not have to charge VAT on some types of work if it meets certain conditions, including:

Building new homes

You may not have to charge VAT on labour or building materials for work you do on a new house or flat.

• building a new house or flat
• work for disabled peoplein their home

·         End users

• For reverse charge purposes consumers and final customers are called end users. They’re businesses, or groups of businesses, that are VAT and Construction Industry Scheme registered but do not make onward supplies of the building and construction services supplied to them.
• The reverse charge does not apply to supplies to end users where the end user tells their supplier or building contractor in writing that they’re an end user.

 Invoices and other VAT documents

Invoices

When supplying a service subject to the domestic reverse charge, suppliers must:

• show all the information required on a VAT invoice
• make a note on the invoice to make it clear that the domestic reverse charge applies and that the customer is required to account for the VAT
• clearly state how much VAT is due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown, but the VAT should not be included in the amount charged to the customer

Please see vat invoice example attached

If you have any questions in regards vat reversal charge, please contact us.