Domestic reverse charge ― supplies of building and construction services ― further considerations

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Domestic reverse charge ― supplies of building and construction services ― further considerations
  • How does the 5% disregard work?
  • Does the reverse charge apply to employment businesses supplying construction workers?
  • Does the reverse charge apply to labour only subcontractors?
  • How do you determine whether staff or labour are being supplied?
  • Does the reverse charge apply to new house builds?
  • Supplies of scaffolding
  • Hiring plant and machinery
  • Does the reverse charge apply to residential conversions and refurbishments?
  • What is the impact of the reverse charge on specialist industries / activities?
  • More...

Domestic reverse charge― supplies of building and construction services ― further considerations

This note deals with the VAT treatment of supplies made to specific industries that either make or receive building and construction services and whether those services come within the scope of the domestic reverse chargethat came into effect from 1 March 2021. This note should be read in conjunction with the Domestic reverse charge― supplies of building and construction services ― overview, Domestic reverse charge― supplies of building and construction services ― VAT compliance and Domestic reverse charge― accounting requirements guidance notes.

How does the 5% disregard work?

HMRC has introduced a 5% disregard that enables small levels of reverse chargeservices to be ignored when supplied with goods and services that are not liable to the reverse charge.

Normally, HMRC would expect that if any services provided are subject to the reverse charge, the reverse chargewill apply to the whole amount. However, if the services liable to the reverse chargerepresent 5% or less of the total value of the supply, none of the supply is liable to the reverse charge, and the supplier will account for VAT in the normal way. This is called the 5% disregard.

See Example 1 and Example 2.

Does the reverse chargeapply to employment businesses supplying construction workers?

Supplies of construction labour made by employment businesses are not subject to the reverse charge, even if those supplies come within the scope of the construction industry scheme (CIS). This is because, for VAT purposes, employment businesses supplying construction workers are treated as supplying staff rather than building and construction services.

If the construction firms are parties to a joint venture and provide workers on secondment to work on that joint venture project, any payments made by the joint venture to each construction firm to pay for those staff members, is not payment for construction services and therefore not subject to the reverse charge.

Does the reverse

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