VAT Reverse Charge

New VAT Rules for Construction

The ‘Domestic Reverse Charge’ (DRC) will apply to VAT on construction services from 1 March 2021. This was announced in a consultation in early 2018, with the intention that it should be introduced on 1 October 2019. There was a delay of a year because of Brexit, then a further 5 month delay because of Covid-19. Brexit and the pandemic are still presenting many of the same challenges as they were in 2019 and 2020, but the government is reluctant to delay the introduction of the new rules for a third time.

From this date, if you provide services and/or materials to a VAT registered customer considered to be an ‘End User’, you should continue to apply and collect VAT at the standard rate.

However, if your customer is not the end user, is registered for VAT and isn’t an intermediary supplier, then you need to apply the Reverse Charge i.e., if you are supplying services to a contractor or sub-contractor in a chain. In simple terms, you will not be adding 20% charge VAT, and your contractor won’t be claiming it as input VAT.

End Users
The term ‘End Users’ refers to consumers and final customers whose business is VAT and CIS registered but who does not make onward supplies of the building and construction services supplied to them. For these businesses or ‘End Users’, Reverse Charge does not apply.

Intermediary Suppliers
These are businesses that are connected or linked to ‘End Users’ and who purchase construction supplies and re-supply them without making alterations. They must:
• Have a relevant interest in the same land where the construction is taking place, i.e. ARE a landlord or tenant OR
• Be part of the same corporate group or undertaking as defined in section 1161 of the Companies Act 2006 (https://www.legisation.gov.uk/ukpga/2006/46/section/1161/2007-01-20). Reverse Charge does not apply.

Reverse Charge applies 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

If your customer is not registered for CIS, VAT or is not classed as an ‘End User’ then the normal rate of VAT should be applied. You will need to receive written notification of being them being an ‘End User’ or ‘Intermediary Supplier’ or we suggest you state clearly in your terms and conditions that unless otherwise notified, you will assume that the customer is an ‘End User’ or ‘Intermediary Supplier’ and you will apply VAT as normal.

You will also need to supply your clients with a written notification to inform them whether you are an ‘End User’ or ‘Intermediary Supplier’ or if you need to apply Reverse Charges in your VAT invoices. Should you require it, GCAMS can supply a template for you to use – a small admin fee for this service will apply.

For more information please visit https:\\www.gov.uk/guidance/vat-reverse-charge-technical-guide