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VAT reverse charge for builders

23 May 2024

There are special VAT reverse charge rules for certain building contractors and sub-contractors.

VAT Reverse Charge for Construction Services

Since 1 March 2021, new VAT reverse charge rules have been affecting certain contractors and sub-contractors. These rules have revamped the tax process for most construction services. Now, the domestic reverse charge is in effect, specifically targeting services within the construction sector.

The reverse charge pertains to standard and reduced rate VAT services:

  • For businesses registered for VAT in the UK.
  • That are reported within the Construction Industry Scheme.

 

Active Implementation

Sub-contractors no longer tack on VAT to their supplies for most building contractor customers under these rules. Instead, contractors are responsible for paying the output VAT that would typically be charged by their registered sub-contractor suppliers. This is what’s referred to as the VAT domestic reverse charge.

Contractors who handle domestic reverse charge payments for their sub-contractors can generally reclaim the same amount as input VAT on their VAT return. As a result, there’s no cash flow impact, merely the additional step of ensuring the accounting entries are correct.

 

Services Affected

The VAT domestic reverse charge applies to services such as:

  • Constructing, altering, repairing, extending, demolishing, or dismantling buildings or structures, permanent or not, including offshore installation services.
  • Constructing, altering, repairing, extending, demolishing any works forming, or intended to form, part of the land, including walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for land drainage, coast protection, or defence.
  • Installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, or fire protection systems in any building or structure.
  • Internal cleaning of buildings and structures, as long as it’s part of the construction, alteration, repair, extension, or restoration process.
  • Painting or decorating the inside or the external surfaces of any building or structure.
  • Services that are an integral part of, or necessary for the preparation or completion of the services described above, including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping, and providing roadways and other access works.

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