Reverse VAT Charge for the Construction Industry

If your business is based in the construction industry, the way that your VAT is collected will change on 1^st March 2021.

The Construction Industry Scheme (CIS) VAT domestic reverse charge is a new measure that aims to reduce VAT fraud in the construction sector. It was originally meant to take effect in October 2019 but was delayed due to Brexit and coronavirus, giving business owners more time to get to grips with what it all means. If you’re still unsure, we’ve put together a general overview.

What is it?

The reverse charge only applies to construction services supplied from one business to another. The result is that the customer will account for your VAT. This may seem simple enough but there are multiple conditions that need taking into account, which are listed below.

When does it apply?

The reverse charge needs to be implemented when:

• The VAT is specifically for construction services and materials
• It is made at a standard or reduced rate of VAT
• Both the supplier and the customer are registered for VAT and CIS in the UK
• The customer intends to make an ongoing supply of construction services to another party (i.e. they are part of the supply chain, rather than the end user)
• The supplier and customer are not connected

Exemptions

The reverse charge doesn’t apply if any of the following are the case:

• The building and/or construction services are exempt from VAT
• The supplies are not covered by the CIS
• The construction supplies are in the form of staff/worker wages
• The taxable services are being supplied to either non-VAT registered customers, end users who are VAT registered but don’t intend to make further ongoing supplies of construction services, or intermediary suppliers who are connected to your business, such as a landlord and a tenant or two companies in the same group

What does it mean for your business?

If the above applies to your business from a supplier perspective, there are a few actions that need to be implemented:

• Staff who deal with contracts must be trained so that they can identify where the reverse charge will be applicable
• You may need to register for VAT and file monthly VAT returns
• Your accounting and bookkeeping systems need to be reshaped so that they can accommodate the new system
• It may be the case that use of the VAT Flat Rate Scheme and Cash Accounting are no longer possible

Needless to say, if you use TreyBridge Accountants for your bookkeeping and accounting tasks, we’ll ensure that the above administrative measures are carried out in a timely fashion. We can also offer you clear advice and resources for training your staff in the new system, or even train them for you either in person or via video call.

Let’s get started

All construction businesses need to be ready for the CIS VAT domestic reverse charge and the sooner the better. Give us a call on 01482 235575, fill in our contact form or connect with me on LinkedIn and TreyBridge will manage the process for you.

Published by Aaron Gilmore