Domestic Reverse Charge VAT for Construction Services

June 12, 2020

If you’re a business working in the construction industry, this is important information for you and your team.

HMRC have published Brief 7 (2020), which explains that the introduction of the domestic reverse charge for construction services will be delayed from 1 October 2020 until 1 March 2021, due to the impact of the coronavirus on the construction sector. This will mean that the customer receiving the service will have to pay the VAT to HMRC instead of paying the supplier. It will only apply to individuals or businesses registered for VAT in the UK (although it will not apply to consumers). This will affect you if you supply or receive specified services that are reported under the Construction Industry Scheme (CIS).

What you need to do to be ready for the start of the domestic reverse charge:

You need to prepare for the 1 March 2021 introduction date by:

  • Checking whether the reverse charge affects either your sales, purchases, or both. You can do this by contacting us here.
  • Making sure your accounting systems and software are updated to deal with the reverse charge.
  • Considering whether the change will have an impact on your cashflow.
  • Making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate.

What contractors need to do:

If you are a contractor, you will also need to review all your contracts with sub-contractors, to decide if the reverse charge will apply to the services you receive under your contracts. You will need to notify your suppliers if it will.

What sub-contractors need to do:

If you are a sub-contractor, you will also need to contact your customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.

How the domestic reverse charge will affect you:

HMRC understands that implementing the reverse charge may cause some difficulties and will apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith.

Any errors need to be corrected as soon as possible, as the longer under declared or overcharged sums remain outstanding, the more difficult it may be to correct or recover them.

HMRC officers may assess for errors during the light touch period, but penalties will only be considered if you are deliberately taking advantage of the measure by not accounting for it correctly.

If anything here is unclear, or you would like help making sense of how to navigate these waters, get in touch with us here or phone us at 0115 9415193

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