Kevin Brewer Business Manager

What is Reverse Charge VAT?

From 1 March 2021, HMRC will be changing the process for collecting VAT for companies in the construction industry. This will have a significant impact on businesses within the construction industry, and it is important that business owners are aware of the changes and how it will affect their business.

In more detail...

Reverse Charge VAT is a mechanism by which the VAT cash does not flow between businesses but is simply included as a paper exercise. This shows on the invoice as a ‘reverse charge’. Only the main contractor then pays the VAT to HMRC. Reverse Charge VAT means that subcontractors will not charge VAT on their invoices, but will state that ‘Reverse Charge VAT applies’.

Who it affects:

Broadly speaking, this affects any VAT registered business that is also registered for CIS.

This will not apply in the following circumstances however:

  • Where services are supplied to the end user (i.e. property owner). This also includes any situation where the main contractor owns the property, completes the building and then sells the completed building.
  • Where the supplies are usually zero-rated
  • When the recipient makes onward supplies of the construction services to a connected company
  • Where the supplier and recipient are landlord and tenant or vice versa