VAT Reverse Charge for the Construction Industry

Changes to the way VAT is accounted for and paid to HMRC for the Construction Industry have come into effect. The VAT reverse charge must be used for most supplies of building and construction services.
Who is affected The reverse charge applies when each of the conditions below are met:
the work or materials are subject to standard or reduced rate VAT
the customer or supplier are not linked in any way
Both the customer and the supplier are VAT and CIS registered
Construction services and/or materials attracting VAT have been supplied to a UK-based end customer
Exemptions VAT reverse charge does not apply to taxable supplies made to the following customers:
A non-VAT registered customer
An 'End User' i.e. a VAT registered customer who doesn't intend to make ongoing supplies of construction
Intermediary suppliers who are connected
Where the customer is an end user, the supplier will need to get written confirmation from the buyer that they are the end user. This should be in writing via post, email or in a written contract. How it works Once you have established that a supply is subject to the VAT reverse charge, the supplier's invoice should be raised with no VAT. Instead it should be clearly stated that VAT Reverse Charge applies at the relevant VAT Rate. The customer then accounts for VAT on their VAT return as both output and input VAT effectively cancelling each other out. Example You are working as a subcontractor for a contractor that is VAT Registered under the Construction Industry Scheme. Here the subcontractor would raise an invoice with no VAT clearly stating that it is subject to the VAT Reverse Charge. The contractor would then pay the invoice but no VAT and account for the VAT in box 1 and 4 of their VAT return and show the net amount in box 7. Penalties for failing to comply HMRC have indicated that they shall go gently on businesses during the first 6 months whilst they adjust to the new scheme. Contact Ashored for more information on the VAT reverse charge for the construction industry.
