6 September 2019
Find out about the VAT domestic reverse charge for building and construction services that starts on 1 October 2020
The domestic reverse charge (referred to as the reverse charge) is a major change to the way VAT is collected in the building and construction industry.
It comes into effect on 1 October 2020 and means the customer receiving the service will have to pay the VAT due 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 October 2020 introduction date by:
- checking whether the reverse charge affects either your sales, purchases or both
- 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’re a contractor you’ll 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’ll need to notify your suppliers if it will.
What sub-contractors need to do
If you’re a sub-contractor you’ll 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.
GOV.UK provides more information about end-users and intermediary supplier businesses.
Services affected by the domestic reverse charge
The reverse charge will affect supplies of building and construction services supplied at the standard or reduced rates that also need to be reported under CIS. These are called specified supplies.
You will have to apply the reverse charge if you supply any of these services:
- constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
- constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) 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 purposes of 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, so far as carried out in the course of their construction, alteration, repair, extension or restoration
- painting or decorating the inside or the external surfaces of any building or structure
- services which form an integral part of, or are part of 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 the provision of roadways and other access works
Services excluded from the domestic reverse charge
The following services are not subject to the reverse charge:
- drilling for, or extracting, oil or natural gas
- extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
- manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
- manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
- the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
- making, installing and repairing artworks such as sculptures, murals and other items that are purely artistic
- signwriting and erecting, installing and repairing signboards and advertisements
- installing seating, blinds and shutters
- installing security systems, including burglar alarms, closed-circuit television and public address systems
How the domestic reverse charge works
The reverse charge means the customer receiving the specified service has to pay the VAT to HMRC instead of the supplier. In turn, the customer can recover the VAT, subject to the normal rules for VAT recovery.