VAT—the reverse charge for building work
Produced in partnership with Martin Scammell
VAT—the reverse charge for building work

The following Tax guidance note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • VAT—the reverse charge for building work
  • Why does this matter?
  • What is a reverse charge?
  • Why a reverse charge for building work?
  • Legislation and guidance
  • What points should be covered in construction contracts?
  • How does the reverse charge work?
  • Works covered by the reverse charge—‘specified services’
  • Who must apply the reverse charge?
  • Notification by end users and intermediary suppliers
  • more

This Practice Note is about the VAT reverse charge for building and construction work, which applies from 1 March 2021.

The charge was originally intended to be introduced from 1 October 2019 but, in September 2019, the government announced that the start date would be delayed by a year. In June 2020, the start date was further delayed until 1 March 2021 due to the impact of the coronavirus pandemic on the construction sector.

Why does this matter?

The reverse charge has significant accounting and verification implications for building contractors and similar businesses, and potentially for their customers. It has cashflow implications, and there is a very real risk of businesses being charged VAT incorrectly, and being exposed to assessments and penalties if they try to recover it as input tax. Vigilance is needed, and the position will often need to be checked before payments are made.

Many points will be best addressed upfront, in construction contracts. Where possible, contracts being entered into before 1 March 2021 should take account of the reverse charge unless the works will clearly have been completed, and all payments will clearly have been made, before that date.

What is a reverse charge?

A reverse charge is a mechanism where the customer, rather than the supplier, accounts for any VAT due. Customers therefore pay only net