VAT IN CONSTRUCTION SCHEME CHANGES March 2021
1st March 2021, there is a change in they way VAT is charged within the construction industry.
DOMESTIC REVERSE CHARGE (OR VAT REVERSE CHARGE)
Contractor point of view
- If you are working for the end user, a house owner, self-builder etc., you charge vat as normal.
- If you are working for another contractor (middle man), making you the sub-contractor, you issue a ZERO RATED invoice.
- You must notify the middle company you have zero rated the invoice because of the reverse charge so they are not confused and assume you have deregistered for VAT.
- Include on your invoices "this invoice is zero rate to comply with the domestic reverse charge, you are responsible for declaring the VAT under the reverse charge arrangement".
- Resulting there will be less VAT to pay or even VAT refunds.
Middle-contractor point of view
- If you are the middle-man, receiving a zero rated invoice you need to do the following;
- Declare the VAT as sales VAT on your VAT return and
- Claim the VAT that has not been charged.
- The net effect is the 2 cancel each other out.
- E.g.
- Previously you would have received an invoice £100+£20vat = £120.
- Now you will receive the invoice for just £100 and no vat.
- £20 has to be added to your box 1 VAT due.
- £20 is also added to your box 4 VAT claim.
- Net effect is £0 VAT payable.
End user point of view
- If you are the end customer, there should be no changes to any invoices you receive.
- However, you always only claim the VAT that has been charged; if someone doing work for you charges the wrong VAT or not VAT, you claim what is on the invoice.
SOFTWARE:
- Your software should cope with the requirements. BUT I expect you would have to tell the software that a purchase invoice is subject to the Domestic Reverse Charge by way of tick box or something similar.
- Installed software may require an upgrade may be required.
- Cloud software may need this feature turned on.
HMRC guidance, including when to apply the new rules and when not to.
https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services