NEWS

The VAT reverse charge

Published:
6
November 2020

HMRC has issued detailed guidance on the domestic reverse charge changes scheduled for 1 March 2021.

The reverse charge represents part of a government clampdown on VAT fraud. Large amounts of VAT are lost through 'missing trader' fraud. As part of this type of fraud, VAT is charged by a supplier, who then disappears, along with the output tax. The VAT is thus lost to HMRC. Construction is considered a particularly high-risk sector because of the potential to make supplies with minimal input tax but considerable output tax.

The reverse charge does not change the VAT liability: it changes the way that VAT is accounted for. From 1 March 2021 the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. This is called a 'reverse charge'.

The reverse charge is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS). It will be used through the CIS supply chain, up to the point where the recipient is no longer a business making supplies of specified construction services. The rules refer to this as the 'end user'.

Broadly then, the reverse charge means that a contractor receiving a supply of specified construction services has to account for the output VAT due – rather than the subcontractor supplying the services. The contractor then also has to deduct the VAT due on the supply as input VAT, subject to the normal rules. In most cases, no net tax on the transaction will be payable to HMRC.

The charge affects only supplies at standard or reduced rates where payments are required to be reported via CIS and not to:

  • zero-rated supplies;
  • services supplied to 'end users' or 'intermediary suppliers'.

Under the scheme a VAT-registered business, receiving a supply of specified services from another VAT-registered business, for onward sale, on or after 1 March 2021:

  • should account for the output VAT on supplies received through its VAT return
  • does not pay the output VAT to its supplier on supplies received from them
  • can reclaim the VAT on supplies received as input tax, subject to normal VAT rules.

The supplier should issue a VAT invoice, indicating the supplies are subject to the reverse charge.

An end user should notify its end user status, so the supplier can charge VAT in the usual way.

Internet links: Gov.uk guidance gov.uk technical guidance

Business news
Finsbury Robinson

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare.

Contact Us

Sign up to our
Monthly Business Newsletter

Sign up to receive our monthly Business Newsletter that will keep you up to date with everything going on in accounting, tax, and finance. 

Finsbury Robinson Services
R&D Tax
Has your company undertaken
any R&D related activities?
Find OUt More
Affected by the
Let Property Campaign?
Find OUt More
Check out our fixed price
Accounting and Business Packages
Find OUt More
Free Book-keeping
Software for all Clients
Find OUt More
Free Auto Enrolment Pensions Advice
Calculate your Contribution!
Find OUt More
Are you aware of the Capital Gains Tax Changes coming?
GDPR Compliance
CAN YOU AFFORD NOT
TO BE GDPR COMPLIANT?
Find OUt More

Sign up to our Monthly Business Newsletter

Find News Articles by Category

News HomeVAT
The VAT reverse charge
To get in touch use our Quick Contact Bar:
Show/Hide

Monday                 8:30AM – 5:30PM
Tuesday                8:30AM – 5:30PM
Wednesday          8:30AM – 5:30PM
Thursday              8:30AM – 5:30PM
Friday                 9:00AM – 12:30PM
Saturday                                 Closed
Sunday                                   Closed

Finsbury Robinson
237 Westcombe Hill
Blackheath
London
SE3 7DW