- 22nd February 2021
- Posted by: Suzy Hill
- Category: Business News, VAT
Domestic VAT reverse charge comes into effect on 1 March
The twice-delayed introduction of the domestic VAT reverse charge for construction services will come into effect on 1 March 2021.
The change was originally scheduled to come into effect from 1 October 2019 but was deferred for 12 months after industry bodies highlighted concerns about the lack of preparation and the impact on businesses.
It was put back another five months due to the impact of the coronavirus (COVID-19) pandemic on the sector. The change will now apply from 1 March 2021 and will overhaul the way VAT is payable on building and construction invoices as part of a move to reduce fraud in the sector.
Under the domestic reverse charge, the customer receiving the service will have to pay the VAT owed straight to HMRC instead of paying the supplier if they report via the Construction Industry Scheme (CIS).
An amendment to the original legislation has made it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their subcontractors, in writing, that they are end users or intermediary suppliers.
HMRC said the additional amendment is designed to make sure both parties are clear in regard to whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and brings certainty for subcontractors as to the correct treatment for their supplies.
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