What is reverse charge VAT for the Construction Industry? This simple tool will inform you when to apply reverse charge VAT. It applies to all businesses within the construction industry.
We have also included detailed analysis and examples of the questions you will need to answer. The solver will inform your construction business whether to apply reverse charge VAT or whether the old VAT rules still apply.
CIS Tax Deduction Calculator
Need to know how much CIS to deduct – try our CIS Tax Deduction Calculator
Reverse Charge VAT Construction further information
There are 5 key questions to answer when resolving whether reverse charge VAT for the construction industry applies. Help on each of these 5 questions is available below.
The main types of work included within the construction industry include:
– construction
– repairs, alterations and extensions
– civil engineering
– installation of heating, lighting or air-con equipment
– painting and decorating
– Plus much more see What work does CIS cover?
Answering NO to this question will result in the reverse VAT charge construction solver showing that normal VAT rules apply.
The reverse charge VAT only applies to construction work. However, when a supply contains a mixture of construction and non-construction work, the whole amount is covered by the reverse VAT charge rules.
Construction businesses will be aware that work on new builds is typically zero rated for VAT purposes.
Answering NO to this question means that the construction work is zero rated (typically a new build). As a result our solver will show that normal VAT rules apply.
The VAT reverse charge only applies if the construction work is standard or reduced rate.
Construction businesses will need to find out if their customer is VAT registered. As a result, you will be required to contact your customer and obtain their VAT number.
To check that the VAT number is valid see our guide VAT Registration Number.
Answering NO to this question will result in the reverse charge VAT construction solver showing that normal VAT rules apply.
The reverse charge VAT rules require the customer to include the invoice amounts in their VAT return submission. This can therefore only be done by VAT registered businesses.
Construction businesses may need to contact their customer and confirm if they are registered for CIS.
TIP: As a subcontractor business you may have already received a payment and deduction statement from your customer in the past. A P&D statement is required when a contractor deducts CIS tax. Therefore, receipt of the P&D statement is confirmation that your customer is registered for CIS.
Should this document not be available, HMRC have confirmed that subcontractors can use the CIS verification system. This system is used currently by contractors to verify the status of subcontractors but it can also be used in reverse.
The reverse charge VAT construction solver will show that normal VAT rules apply when answering NO to this question.
The reverse charge VAT rules only apply for construction work carried out between a CIS registered contractor and a subcontractor.
The consumer or final customer is the end user. This would therefore typically be the property owner. They don’t make onward supplies or recharge the work carried out, as a result the supply chain ends with them.
Construction businesses will need to contact their customers and ask if they are the end user. Should there be any doubt HMRC have stated that the default position should be to treat the customer as if they are NOT the end user. We therefore recommend that confirmation of end user status is received from the customer in writing.
Answering YES to this question will result in our solver showing that normal VAT rules apply.
The reverse charge VAT rules only apply within a continuing supply chain. As a result the end user breaks the supply chain.
Reverse charge VAT construction solver tip!
TIP: You don’t need to be able to answer all questions – for example if you know your customer isn’t VAT registered then automatically the VAT treatment is that normal VAT rules apply. It therefore does not matter what the answer is to the remaining 4 questions. The reverse VAT charge would never apply if the customer is not registered for VAT.
The reverse charge VAT only applies when the first 4 questions are all answered as YES and the last question is answered as NO. As a result if you can change any single one answer then you would revert back to the normal VAT rules.
See the illustration below.
Reverse Charge VAT for Construction FAQs
Finally, for more information see how FAQs on the reverse charge VAT for construction businesses. It includes examples of how the VAT returns will change, the impact on business cashflow and suggestions on how to implement the change.
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DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer