VAT registered construction businesses are advised to be aware of the reverse charge measure that is to be implemented from 1 March 2021.
Letters were distributed to every VAT registered construction business in January 2021, in addition to letters circulated back in February and September 2020, which advised them to assess whether they may be liable for the reverse charge. Any liable businesses are encouraged to start to make the relevant preparations now.
There is additional information on the scope of the reverse charge and how it will operate , and some of the fundamental elements are as follows:
- It will be applicable to standard and reduced-rate supplies of building and construction services made to VAT registered businesses, who also make onward supplies of those building and construction services
- The contractor will be responsible for paying the output VAT due, as opposed to the sub-contractor, and is able to carry on reclaiming this amount as input tax
- The scope of the supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme (CIS), but does not apply to supplies of staff or workers that the customer utilises
- The legislation introduces the concept of ‘end users’ and ‘intermediary suppliers’ – this covers businesses or groups of associated businesses who do not make supplies of building and construction services to third parties. They are, therefore, excluded from the scope of the reverse charge if they receive such supplies. The examples provided include landlords, tenants and property developers
