The twice-delayed introduction of the domestic VAT reverse charge for construction services came into effect on 1 March 2021.
The change was originally scheduled to come into effect from 1 October 2019 but was deferred for 12 months after industry bodies highlighted concerns about the lack of preparation and the impact on businesses.
It was put back another five months due to the impact of the coronavirus (COVID-19) pandemic on the sector. The change applied from 1 March 2021 and overhauled the way VAT is payable on building and construction invoices as part of a move to reduce fraud in the sector.
From March 2021, the person receiving the supply of services, not the supplier of services, who accounts for the output VAT on those services. The recipient deducts VAT due on the supply as input VAT, subject to normal VAT rules. In most cases, no net tax on the transaction will be payable to HMRC. This new procedure will apply right the way up the CIS supply chain until you reach end users/intermediary suppliers, the supply defaults to normal VAT rules, so long as the end user/intermediary supplier correctly evidences their status.
The Domestic Reverse Charge (DRC) applies to most supplies of building and construction services from 1 March 2021, which are:
- standard or reduced rated supplies
- where both parties are registered for VAT in the UK
- and payments for the supplies are required to be reported via the Construction Industry Scheme.
The DRC does not apply to:
- zero rated supplies
- services supplied to end users or intermediary suppliers, so long as these have provided written confirmation of their status to the supplier
- employment businesses supplying either staff or workers.