VAT: domestic reverse charge for building and construction services
Following RTI, AE, MTD and all the other abbreviations we all love to hate we are now faced with a further change to our favourite abbreviation VAT.
The domestic reverse charge (referred to as the reverse charge) is a major change to the way VAT is collected in the building and construction industry.
It comes into effect on 1 October 2019 and means the customer receiving the service will have to pay the VAT due to HMRC instead of paying the supplier.
It will only apply to individuals or businesses registered for VAT in the UK (although it will not apply to consumers).
This will affect you if you supply or receive specified services that are reported under the Construction Industry Scheme (CIS).
What you need to do to be ready for the start of the domestic reverse charge
You need to prepare for the 1 October 2019 introduction date by:
checking whether the reverse charge affects either your sales, purchases or both
making sure your accounting systems and software are updated to deal with the reverse charge
considering whether the change will have an impact on your cashflow
making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate
What contractors need to do?
If you’re a contractor you’ll also need to review all your contracts with sub-contractors, to decide if the reverse charge will apply to the services you receive under your contracts. You’ll need to notify your suppliers if it will.
What sub-contractors need to do?
If you’re a sub-contractor you’ll also need to contact your customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.
Find out more about end users and intermediary supplier businesses.
Services affected by the domestic reverse charge
The reverse charge will affect supplies of building and construction services supplied at the standard or reduced rates that also need to be reported under CIS. These are called specified supplies.
There is an important difference between CIS and the reverse charge where materials are included within a service. The reverse charge applies to the whole service whereas CIS payments to net status sub-contractors are apportioned and no deductions are made on the materials content.
The reverse charge does not apply if the service is zero rated for VAT or if the customer is not registered for VAT in the UK.
It also does not apply to some services. These are those supplied to end users or intermediaries connected with end users. Find out more found in the End users and intermediary supplier businesses section.
Employment businesses who supply staff and who are responsible for paying the temporary workers they supply, are not subject to the reverse charge. Read the Applying the domestic reverse charge for construction services to certain sectors or types of transactions section for more information.
You will have to apply the reverse charge if you supply any of these 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
For further information contact firstname.lastname@example.org