VAT Domestic reverse charge for the construction industry

Published on March 1, 2021 by Nick Donohue - Head of Tax

The CIS VAT domestic reverse charge will apply to supplies of construction work from 1 March 2021 for those businesses registered under CIS. This change was due to commence in October 2019 but was delayed due to Brexit and the Coronavirus. The aim of the measure is to reduce VAT fraud in the construction sector with the customer accounting for both the output and input VAT on the same VAT return for supplies that it receives.

When the reverse charge applies, the customer accounts for the supplier’s output VAT. This will only apply to construction supplies made by a business to another business.

The reverse charge must be used when all the following conditions are met:

  • The supply consists of construction services and materials.
  • The supply is made at a standard or reduced-rate of VAT.
  • The supply is between a UK VAT registered supplier and UK VAT registered customer.
  • Both the supplier and the customer are registered for CIS.
  • The customer intends to make an ongoing supply of construction services to another party.
  • The supplier and customer are not connected.

The CIS reverse charge does not apply to any of the following supplies:

  • Supplies of VAT exempt building and construction services.
  • Supplies that are not covered by the CIS.
  • Supplies of staff or workers.

The CIS reverse charge will also not apply to taxable supplies made to the following customers:

  • A non-VAT registered customer.
  • ‘End Users’ i.e. a VAT registered customer who is not intending to make further on-going supplies of construction.
  • ‘Intermediary suppliers’ who are connected e.g. a landlord and his tenant or two companies in the same group.

Nick’s experience covers all major areas of taxation and during 2020 /21 Nick has led RPG’s response to the Covid-19 pandemic with interpretation and follow up of the various support packages provided by the Chancellor of the Exchequer, during what has been a very stressful time for many clients. Nick has also been instrumental in guiding clients through the conclusion of the UK’s Brexit deal, advising clients on the general tax and VAT implications of the final deal. Contact: NDonohue@rpg.co.uk

View all posts by Nick Donohue - Head of Tax

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