VAT Reverse Charge – starts 1 March 2021

  • New VAT rules originally scheduled to start 1 October 2019
  • Affects builders, contractors and other trades associated with building industry (CIS)
  • To prevent missing trader VAT fraud
  • Mian contractor will account for the VAT on the services of the sub-contractor
  • The supplier (sub-contractor) does not invoice for VAT
  • Main contractor shows the VAT as output tax and input tax on their return
  • Only applies to construction businesses which then use them to make a further supply of building services, and not to end users e.g. private individuals

Reverse Charge Example

  • Current rule:
    • Electrician Rob invoices BigBuilder Ltd £10,000 plus £2,000 VAT
    • Rob's VAT Return: Box 1 - £2,000, Box 6 - £10,000
    • BigBuilder Ltd VAT Return: Box 4 - £2,000, Box 7 - £10,000
  • From 1 March 2021:
    • Rob invoices just £10,000 with no VAT
    • Rob's VAT Return: Box 6 - £10,000 only
    • BigBuilder Ltd VAT Return: Box 1 - £2,000, Box 4 - £2,000, Box 7 - £10,000

Reverse Charge Invoices

  • Show all the information required as normal for a VAT invoice e.g. VAT number etc.
  • Make it clear that the Reverse Charge applies and that the customer is required to account for the VAT. For example, adding the following to the invoice:
    • 'Reverse charge applies – customer to pay VAT to HMRC'
  • Note – invoice the NET amount

VAT – CIS REVERSE CHARGE – KEY FLOWCHARTS

NB – see VAT reverse charge technical guide for details -

Chart 1

Chart 2