VAT reverse charge for the construction industry

From 1 October 2020 the VAT reverse charge will be introduced for VAT-registered contractors and subcontractors in the construction industry. Simply put these new rules mean that the customer (contractor) must pay the VAT due on building and construction services they receive to HMRC instead of the supplier (subcontractor). The supplier’s invoice must make it clear to the customer that the reverse charge applies and the customer can then recover the VAT on the same VAT return in line with normal rules.

The VAT reverse charge applies only to transactions between VAT-registered contractors and subcontractors where payments must be reported through the construction industry scheme (CIS). The new changes are being implemented as a response to missing trader fraud and are designed to prevent annual losses estimated at about £100m.

If a business is...