VAT Reverse charge- how to prepare

What is the VAT Reverse Charge?

The VAT reverse charge is for building and construction services in the United Kingdom, and applies to how VAT is processed and handled within the construction industry. 

The VAT charge is an extension of the Construction Industry Scheme (CIS) and therefore only applies to transactions that are under the Construction Indsutry Scheme, and between contractors and sub-contractors whom are VAT registered.

If you are not registered for VAT under the CIS, the reverse charge will not apply to you or your business.

 

How does it work?

The VAT reverse charge is the amount of VAT that you would have paid on a particular service if you had bought it into the United Kingdom. Moreover, you have to add this amount to the total VAT which you are entitled to pay to HMRC during that quarter. In addition to this, you also need to consider the amount of VAT which you are planning on reclaiming during that quarter also. 

 

When will it be introduced?

From the 1st of March 2021, the VAT reverse charge must be applicable for all supplies of the building and construction industry services. This charge was originally meant to be applied in October 2019, however, due to the effects of Brexit and the Coronavirus outbreak, it has been pushed back until March 2021.

 

When to use it?

The VAT reverse charge applies to the inclusion of the following services, according to HMRC files;

  1. Demolishing/altering/repairing/dismantling any buildings and structures whether they are permanent or temporary.

     

  2. Demolishing/altering/repairing/constructing any form of land works including roadworks, walls, power/electricity lines, sewers, water mains, coast protection, aircraft runways etc.

     

  3. Installing systems within any building or structure; for example lighting, heating, ventilations, water supply or fire protection.

     

  4. Cleaning services within buildings and structures which have taken place during the construction services.

     

  5. Painting/decorating inside buildings and structures, both internal and external.

     

  6. Services including excavations, tunnelling, scaffolding, site restoration and landscaping.

 

When not to use it?

The VAT reverse charge also has examples of exclusions which if they are supplied on their own, see below the following list HMRC has provided;

  1. Services which consist of drilling for or involves the extraction of natural gasses and oils.

     

  2. Using underground and surface working services for extracting materials.

     

  3. Manufacturing services of building or engineering equipment and material components and then delivering to any site.

     

  4. Manufacturing services of heating, lighting, ventilation, water supply and fire protection systems for components and then delivering to any site.

     

  5. Professional architects and surveyors for building engineering as well as landscape consultants.

     

  6. Installation/repairs of sculptures and murals which have any artistic purposes.

     

  7. Installation of seating, blinds, burglar alarm systems, and general security systems. 

 

Next Steps

In order to comply with the VAT reverse charge commencing March 2021, ensure that all members of staff are aware of the reverse charge and how it will come into effect. In addition to this, ensure that your accounting system or software can manage the reverse charge. 

MCL Payroll are able to provide a full service solution to your CIS and VAT reverse charge requirements, to take the hassle out of this often complex area of construction operations. Call us today on 01255 258316 or email us at info@mclpayroll.co.uk.

For more details from HMRC, visit their guide to the VAT reverse charge here. 

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