From March 1st 2021 the domestic VAT reverse charge came into effect throughout the UK and must now be used for most supplies of building and construction services. The charge currently applies to standard and reduced rate VAT services for individuals or businesses registered fro VAT in the UK and for those reported within the Construction Scheme Industry.
What is the reverse charge?
- If you’re a main contractor, unless you can opt to be an end user, you’ll stop paying VAT to subcontractors working on projects where the CIS Scheme applies. Instead you’ll pay the VAT directly to HMRC.
- If you’re a subcontractor this will affect your cash flow as it will reduce the gross amount that you charge to your main contractor.
Who it effects?
Whether you’re a main or subcontractor the VAT reverse charge will affect you if both of the following apply:
- You work on any contract covered by the CIS.
- Both you and your main contractor or subcontractor are a VAT registered business.
- If your subcontractors are not registered from UK VAT, or supplies are zero rated then the reverse charge will not affect you. Nor will it apply to end user customers.
- If the VAT reverse charge does however apply to you, you must get ready for it and use the ruling now.
What do you need to do?
- Use the chart below to check if the reverse charge affects you.
- If it does, and payments are under a contract that continues after 1st March 2021 ask your subcontractors and/or contractors about their CIS , end user and VAT registration status if you don’t already know this.
- Talk to the people who help you invoice for work or manage your VAT (if this is us get in touch here) so they can update your accounting systems to apply the correct treatment from March 1st 2021