New VAT Domestic Reverse Charge Scheme for Construction Sector

sites • February 9, 2021

New VAT rules for building contractors and sub-contractors come into force from 1st March 2021. The new rules were originally planned to come into effect from 1st October 2019 prior to a 12-month delay being announced. The delay was then extended for a further 5 months to 1st March 2021 as a result of the coronavirus pandemic and its impact on the construction sector.

These new rules make the supply of most construction services between construction or building businesses subject to a domestic reverse charge. The reverse charge will only apply to supplies of specific construction services to other businesses within the construction sector.

This means that from 1st March 2021, sub-contractors will no longer add VAT to their supplies to the majority of their building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge.

HMRC’s guidance states that, for invoices issued for specified supplies that become liable to the reverse charge, the VAT treatment for invoices with a tax point:

• before 1st March 2021 – the normal VAT rules will apply, and you should charge VAT at the usual rate and

• on or after 1st March 2021 – the domestic reverse charge will apply.

If you would like any further guidance or help in relation to the new domestic reverse charge scheme, please get in touch.

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