The new VAT Domestic Reverse Charge which was originally due to start in October 2019 has been the subject of a renewed commitment by the government.
A spokesperson confirmed that after a number of postponements:
“The government is committed to implementing the reverse charge on the 1st of March”
The reverse charge is intended to reduce VAT fraud for companies that buy or sell construction services.
How The Reverse Charge Will Work
The reverse charge heps to reduce VAT fraud by ensuring that companies who provide an onward supply of services (e.g. typical subcontractors) are unable to bypass paying VAT where normal VAT rules don’t apply.
For builders that supply services directly to the final customer (or ‘end-user’) VAT should be charged in the usual manner.
As of the 1st of March, builders supplying services will need to determine if the recipient is the end-user.
For builders selling services there are five key questions to ask:
Is the customer registered for the Construction Industry Scheme (CIS)?
If the answer is ‘no’, there’s no need to worry about the reverse charge and normal VAT rules apply for the customer.
Is the customer registered for VAT?
Again, if the answer is ‘no’, VAT can be applied as normal.
To make sure that the information provided is correct, HMRC has created a VAT number checker which is free to use and can be found here.
Is the work within the scope of the CIS?
Traditional building services are included, but if you’re not sure you can check HMRC’s guidance on the CIS.
Is the work subject to either 5% or 20% VAT?
Zero-rate sales are not subject to the reverse charge. This includes the construction of new homes.
Is the customer an end-user or intermediary supplier for the work?
If you’re selling your services directly to the final customer the normal VAT rules apply.
So, for example, a bricklayer that carries out work on a property that is owned (or rented out) by the customer would charge VAT in the usual manner.
It’s the customer’s responsibility to inform you if they are the end-user.
If you’re still not sure about where the Domestic Reverse Charge applies we’ve created two helpful flowcharts that you can print out and use for your reference.
For more information on how the reverse charge will affect your business speak to one of our VAT team.
Call 01704 211 434 or email email@example.com.