VAT Reverse Charge for Construction

(3 minutes to read)

Self-employed professionals working in the construction industry will need to make sure that they are familiar with the VAT reverse charge.

What is the VAT reverse charge?

Introduced on the 1st of March 2021, the VAT reverse charge is used for most supplies of both building and construction services.

It basically means that any VAT registered contractor paying for these types of services – services that are covered by the Construction Industry Scheme (CIS) – will need to pay the owed VAT directly to HMRC instead of paying it to the contractor/subcontractor/supplier.

For more information on VAT and whether or not you need to register, read our What is VAT? page.

What is the Construction Industry Scheme?

CIS is a tax deduction scheme affecting self-employed workers contracting in the construction sector.

It was put in place to prevent fraud and tax evasion in the industry and also helps subcontractors by spreading out their tax liabilities throughout the financial year because the deductions count as advanced payments towards their tax and NI.

All contractors must register for CIS – if you pay subcontractors for construction work or you have spent more than £3m on construction in the 12 months since you made your first payment (even if you don’t have a business that carries out construction work), then you count as a contractor.

It’s not mandatory for a subcontractor to register for CIS, however, if they don’t then they will have 30% deducted from their payments as opposed to 20% if they were registered.

If you are a subcontractor and you’re also either a sole trader, the owner of a limited company or a partner in a partnership or trust, then you will have to register.

You can fall under both categories of contractor and subcontractor, in which case you’ll need to register as both.

For more information on CIS, read our Construction Industry Scheme page.

Who does the VAT reverse charge apply to?

As mentioned previously, the VAT reverse charge applies to VAT registered contractors who are either supplying or receiving construction services that are reported under CIS.

Examples of services whereby you must use the reverse charge include:

  • Either constructing, altering, repairing, extending, demolishing or dismantling: buildings or structures, power lines, railways, pipelines and electronic communications equipment (the full list can be found on GOV.UK.).
  • Installing things like heating, lighting, drainage, power supply and water mains in a building or structure.
  • Internal cleaning of buildings and structures.
  • Painting and decorating either the inside or the external surfaces of a building or structure.

If your business isn’t VAT registered then you need to ensure that the other party is aware of this.

It does not apply to ‘end users’ such as occupiers using the building that has been constructed, retailers and landlords.

There are certain services, that when supplied on their own, aren’t affected by the charge.

Examples include:

  • Installing seating, blinds and shutters.
  • Installing security systems.
  • Either drilling for or extracting oil or natural gas.
  • Manufacturing the components for things like heating, lighting and drainage (as well as delivering these to the site).

We hope this page has answered some of your questions on the VAT reverse charge for Construction. Our team of experts are available to answer any other queries you may have, so give us a call on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.

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Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, Contractor Umbrella, it means we can offer one low cost, fixed fee package at £105 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of Contractor Umbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, Contractor Umbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use Tide free of charge for the first year.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.
  • Same day payments- We offer same day payments as standard providing funds are received into our account by 9am, for no additional fee.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

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