Better known as the Construction VAT Reverse Charge, this scheme finally came into effect on 1st March 2021.

If you work in the construction industry – particularly as a contractor or subcontractor – you need to know about it. This post provides you with a recap of the scheme and how it works.

The old situation

In days of old, if you were a VAT registered subcontractor and you provided construction services to a contractor, you could charge VAT on the work you carried out. You accounted for the VAT you charged and paid it over to HMRC when you completed your VAT return.

Enter the Construction VAT Reverse Charge

Things all changed from 1st March 2021. Now, when you provide services to a contractor, they become responsible for working out the VAT applied to those services.

The contractor does not pay over the VAT to the subcontractor. Instead, they declare the VAT on their own tax return. However, on the same VAT return they declare the same amount as a deduction. This is what is known as the ‘reverse charge’.

Why the change?

The new scheme was designed to combat fraud. The rationale is to stop companies charging contractors VAT, only to disappear without paying the money over to the taxman.

Are there exceptions to applying the VAT Reverse Charge?

Yes, but they are very detailed. Subcontractors should not use the reverse charge when charging for certain services that are supplied on their own. These include:

  • Drilling for, or extracting, natural oil or gas
  • Installing security systems, such as burglar alarms, CCTV and PA systems.
  • Manufacturing building or engineering components, materials, plant or machinery, or delivering these to site.

For full details on when the charge does and does not apply, please visit this page on the gov.uk website which goes into more detail about the scheme. Alternatively, you can get in touch with us if you need further assistance.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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About Karen Jones

Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.

With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.

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