Although it was delayed from 2019, the reverse charge for building and construction services is on its way, effective from 1 October 2020 and it will affect all those individuals and businesses registered for VAT in the UK who supply or receive supplies of building and construction services (see below) supplied at the standard or reduced rates that also need to be reported under the Construction Industry Scheme (CIS).
The reverse charge does not apply to consumers or final customers (end users) of building and construction services, but it does apply to thousands of businesses involved in the sector. Whilst CIS applies only to labour costs, the reverse charge applies to the whole charge, including any materials. The reverse charge does not apply to zero rated services however or if the customer is not registered in the UK for VAT.
How it works is that the customer receiving the service must declare and pay the VAT to HMRC instead of the supplier. The customer can also recover the VAT subject to normal rules for VAT recovery.
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.
If you have any questions about how your business is affected please contact us.