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The construction industry VAT Reverse Charge at a glance

The construction industry VAT Reverse Charge at a glance

The domestic VAT Reverse Charge was introduced throughout the UK on 1st March 2021 for the construction industry, in an effort to combat VAT fraud. This Reverse charge is likely to have a significant impact on cashflow and VAT compliance, with major system changes required for those operating in the sector. To help your business adhere to the new rules, we look at the construction industry VAT Reverse Charge at a glance.

What is the VAT Reverse Charge?

The construction industry VAT Reverse Charge was due to begin in October 2019, however, the start date was delayed twice due to Brexit and the Covid-19 pandemic. The charge is designed to be a mechanism to prevent VAT avoidance by suppliers within the construction industry, which charge and collect VAT from the recipient yet fail to account for the VAT when reporting to HMRC.

The new Reverse Charge changes the accounting responsibility so that suppliers are accountable to the recipient of their supplies rather than HMRC. This means recipients of goods are now directly responsible for paying VAT to HMRC, instead of paying the supplier VAT.

Who does the VAT Reverse Charge apply to?

The Reverse Charge measure only applies to construction supply purchases that are made between two businesses, although certain conditions need to be met:

1) The VAT charge must relate to construction materials and services.

2) A standard or reduced rate of VAT must apply.

3) It must be between UK VAT registered customers and VAT registered suppliers.

4) Both the supplier and customer must be registered for CIS.

5) The supplier and customer cannot be connected.

6) The customer must intend on maintaining an ongoing supply of construction services.

The charge will not apply in the following circumstances:

1) Any building services of construction services that are exempt from VAT.

2) Any supplies which are not covered via CIS.

3) Any supplies sold to employees.

4) Supplies sold to customers which are not registered for VAT.

5) If the customer is not intending on using materials to make on-going supplies to the construction industry.

6) If the customer is an intermediary supplier, such as a landlord and the tenant within a property.

How will the Reverse Charge impact the construction services?

The charge will significantly impact the management of cashflow for businesses operating within the construction industry. For example, the VAT Reverse Charge could mean that a business will make net repayment claims to the HMRC, as there will be no VAT received on sales. To effectively manage this, you can ask to move your reporting to monthly returns through your online VAT account.

If you operate as a subcontractor, your customers will no longer be paying VAT directly to you. This will in turn reduce the value of gross payments made to you, so you will need to manage cash flow to reflect this.

To adapt to the new Reverse Charge, your business will need to implement the required accounting systems and train staff to ensure they are familiar with the new approach to VAT accounting. If HMRC finds that a business is deliberately taking advantage of the new measure, penalties will be imposed.

To find out more about the construction industry VAT reverse charge, please contact us today.

Affordable Pay-monthly Packages

We offer a full range of services to limited companies, solo trader, partnership, charity, LLP, CIC as well as individuals. We have arranged our services into easy to choose packages that suit your needs.

Start-up
£ 60  / Month (+VAT)

This price plan is suitable for the start-up companies who are not VAT registered.

  • Year-end accounts preparation and submission
  • Corporation Tax returns
  • Payroll & RTI submission for 1 employee
  • Personal tax return [salary & dividends income only] (Free)*
  • File confirmation statement (annual return) with Companies House
  • Reference letters for Director only (Free)*
  • Assisting with correspondence from HMRC and Companies House
  • Unlimited face to face advice and email support
  • 1 Director
  • 1 Shareholder
  • Annual turnover should be less than 80K
Limited Company
£ 100  / Month (+VAT)

This price plan is suitable for the companies who are VAT registered and turnover is less than 100K with a couple of employees.

  • Year-end accounts preparation and submission
  • Corporation Tax returns
  • Monthly payroll including RTI submission for up to 2 employees
  • Personal tax return [salary & dividends income only] (Free)*
  • File confirmation statement (annual return) with Companies House
  • Reference letters for Director only (Free)*
  • MTD VAT returns submissions – quarterly
  • Unlimited face to face advice and email support
  • 1 Director
  • 1 Shareholder
  • Annual turnover should be less than 100K
Company Pro
£ 150  / Month (+VAT)

This price plan is suitable for the companies who are VAT registered; turnovers are more than 100K and have 2 directors and shareholders.

  • Company formation (if required)
  • Year-end accounts preparation and submission
  • Corporation Tax returns
  • Monthly payroll including RTI submission for up to 5 employees (Free)
  • MTD VAT returns submissions – quarterly
  • Personal tax return [salary & dividends income only] (Free)*
  • File confirmation statement (annual return) with Companies House
  • Reference letters for Director only (Free)*
  • Unlimited face to face advice and email support
  • 2 Directors
  • 2 Shareholders
  • Annual turnover should be less than 200K
Company Premium
Let's talk.  / 

This bespoke price plan is suitable for the companies who are VAT registered, with more directors, shareholders and employees. Also, annual turnover is more than 200k and requires further bespoke services.

  • Company formation
  • Year-end accounts preparation and submission
  • Corporation Tax returns
  • Monthly payroll including RTI submission all employees
  • MTD VAT returns submissions – quarterly
  • Personal tax return [salary & dividends income only] (Free)*
  • File confirmation statement (annual return) with Companies House
  • Reference letters for the all Directors (Free)*
  • Unlimited face to face advice and email support
  • Flexible and can be discussed
  • Annual turnover should be more than 200K

Add on Services

  1. Personal Tax Returns

    This price plan is suitable for self-employed individuals, landlords and those who need to submit Self-Assessment Tax Returns.

    If you need to submit the Self-Assessment Tax Return, we can offer you competitive prices starting from £150 + VAT. Price can vary according to your nature of income. Please contact us for more details.

  2. Tax Investigation
  3. Business Legal Support
  4. Company Formation
  5. Business Mentoring
  6. ARA accounting services for ATOL & ABTA travel companies

    Our commitment to you is that we’ll ensure all the information we’ve submitted to the Civil Aviation Authority is up-to-date and accurate. 

Taxcare Accountancy was formed to provide Small & Medium Businesses with an affordable, proactive and professional accountancy services…