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