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With effect from 01/03/2021 work carried out in the Construction Industry Scheme, and VAT could be subject to the new rules

  • The reverse charge mechanism shifts the liability for accounting for output VAT from the supplier to the customer. This prevents the supplier from charging what purports to be VAT to the customer, but then absconding with the VAT element and not paying it over to HMRC.

  • The domestic reverse charge will only affect supplies at the standard or reduced rates where payments are required to be reported through the CIS.

  • You should apply the reverse charge when all the following are met:

    • The supply for VAT consists of construction services and materials.

    • It is made at a standard or reduced-rate of VAT.

    • Between a UK VAT registered supplier and UK VAT registered customer.

    • Supplier and customer are registered for CIS.

    • The customer intends to make an ongoing supply of construction services to another party.

    • The supplier and customer are not connected.

  • It does not apply to the following:-

    • Supplies of VAT exempt building and construction services.

    • Supplies that are not covered by the CIS, unless linked to such a supply.

    • Supplies of staff or workers.

If you are a subcontractor

  • If you’re invoicing a customer (or contractor) in a supply chain, you’ll either have to charge VAT as normal or apply the reverse charge. For the reverse charge, your invoice total will not include VAT. However, your invoice must include a statement advising your customer (or contractor) that the reverse charge rules apply, stating the amount of output VAT to be applied (20% if it’s the standard rate of VAT).

  • Your customer (or contractor) will need to include that amount on their VAT return. You do not include anything on your VAT return about the reverse charge.

If you are a main contractor

  • If you are the main contractor receiving a VAT reverse charge invoice from a subcontractor, you should continue to record it as a normal expense invoice and include input VAT on your VAT return.

  • You’ll also need to account for the reverse charge VAT the subcontractor has notified you about. The overall effect on your VAT liability is neutral as the output VAT is covered by the input VAT

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