VAT Reverse Charge including Construction Industry Scheme: When and How to Use

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The VAT Reverse Charge (for buildings, construction services) is simply the change of how VAT is handled in the UK Construction Industry Scheme. It applies directly to services and does not include the materials used in the scenario, as this can be provided separately in front of the construction service. 

What You Need To Do with the VAT Reverse Charge

To prepare, you need to take note of the following before you proceed: 

  • Secure your software and accounting systems to cater to the VATreverse charge
  • Assess the situation and how it will impact your cash flow
  • Work with staff familiar with the reverse charge, how it works, and what requirements are needed from it. This is to avoid any other delays during the process.

1. Determine The Perfect Time To Use The VAT Reverse Charge On Sales And Purchases

You can only make use of the reverse charge when you’re having one or more of the following services available: 

  • When you’re working to either construct or dismantle a building, as well as apply alterations, do quick or maintenance repairs, or demolish a whole infrastructure. This can be temporary or permanent, including installation fees.
  • Another is when you’re working with a part of lands such as a wall, telephone lines, reservoirs, pipelines, railways, docks, harbours, wells, or anything related to public drainage safety or coast protection defence. 
  • When you’re installing a heater, a source of light, air-conditioning, a source of power/power supply, water supply or sanitation, protection from fire, and many other systems meant for a building. 
  •  A thorough cleaning project of buildings and other establishments, as long as it’s in the context of a repair, demolition, or creation of a structure. 
  • The decorating, painting, or altering of internal structures of any building.
  • Other services failed to be mentioned above that are still part of the creation, repairing, or demolition of a building, such as the clearing or a site, alteration of earth or base, creation or tunnels or boring, landscaping, and providing roadway and other access routes.

2. Determine When To Note Use The VAT Reverse Charge 

When supplied on their own, it’s best to not use VAT reverse charge for any of the services below:

  • The drilling of holes and extraction of natural gas and/or oils.
  • Mineral extraction, whether camping underground or on the surface, creating tunnels, boring, or the creation of underground infrastructures for this purpose.
  • The creation of building components or engineering equipment, machinery or plant, and anything attempts to delivering to these sites
  • Creating components for HVAC purposes, lighting, power supply, drainage, protective power systems, or any attempts to deliver to these sites
  • The services of architects, surveyors, and other professionals in charge of the pre-construction process. This includes landscape and exterior consultants.
  • Also, creating murals, sculptures, signboards, ads, and other artistic expressions include erecting something from the land. This also consists of the repair and instalment.
  • Shutter and blinds installation and repair
  • Installing security cameras, alarms, and televisions

3. VAT Reverse Charge If Your Supply Services

Before proceeding, find out the following guidelines: 

  • Double-check if your customer has an available and legitimate VAT number. 
  • Make sure your customer has a CIS registration
  • Check your contacts to determine if this type of method works, and then get back to your customers immediately after the assessment
  • Determine if your customer is an intermediary or an end-user
  • Discover how to record the reverse charge in accounts

How To Check A Customer’s CIS

There is a link online to determine if a customer has registered for a CIS in the Construction Industry Scheme online services (stay it out) and is open for public use. However, contractors for CSI will not appear in the inquiry. Unless they are intermediary or end-users, get in touch and confirm their CIS registration before making the reverse charge.

4. Reverse Charge If You Buy Services

Here are some small reminders to take note about moving forward: 

What You’ll Need To Do:

  • Check the supplier for their valid VAT number
  • Inform your supplier asap if you are either an end-user or an intermediary, as reverse charges may not apply to you

After confirming the systems and software for the reverse charge, you’ll then need to:

  • Check if the invoice you received is the right one
  • Review the list of services that can take advantage of these charges
  • Make sure to record your VAT reverse charge.

5. Educate Yourself More About Reverse Charge

It’s essential to be aware of what you’re getting into, especially if it’s complicated. It helps to know about the usual terms used in this method, just like the type of suppliers. Intermediary Suppliers are linked to end-users and are VAT and CIS registered. If they re-supply construction services to the end-users, they’ll be treated as end-users, and the reverse charge does not apply to this. 

On the other hand, end-users are called consumers or customers. They can be a business or a group of them registered under the VAT and CIS but do not continue to supply materials for the buildings and construction services given to them.

Fast Facts About Reverse Charges

Date Released

It comes out on March 1, 2021. Previously, it was scheduled for October 19, 2019, but it got rescheduled to October 2020 instead. According to the experts, they did this to avoid any changes that come with Brexit and give many businesses more time to prepare. However, the UK government again pushed it forward because of the COVID outbreak. 

The Reason For Its Existence

According to Her Majesty’s Revenue Customs, this is a way to combat fraud. According to them, construction businesses that offer their services but disappear before settling their VAT bill and taking 10% of the profit with them, a gain that isn’t theirs, to begin with. Because of this, the construction industry is full of fraud and organized criminals. 

Still, have some questions about reverse charges and your business taxes? Follow Annette & Co. on social media for more helpful updates. Better yet, reach out to us today for a business consultation!

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.