Taxation

VAT Reverse Charge Construction Industry solver

Reverse VAT Charge Construction SolverThis simple to use solution will inform you when to apply the VAT reverse charge. 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 the VAT reverse charge or whether the old VAT rules still apply.

UPDATE: Delay in VAT Reverse Charge for the Construction Industry until 1st October 2020

Need to know how much CIS to deduct – try our CIS Tax Deduction Calculator

VAT Reverse Charge Construction further information

There are 5 key questions to answer when resolving whether the VAT reverse charge for the construction industry applies. Help on each of these 5 questions is available below.

Question 1: Are the supplies made within the scope of CIS?

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 VAT reverse charge construction solver showing that normal VAT rules apply.

The VAT reverse charge 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.

Question 2: Is the supply standard or reduced rate for VAT?

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 normal VAT rules in this situation is that the VAT rate is zero rated.

Question 3: Is your customer registered for VAT?

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 VAT reverse charge construction solver showing that normal VAT rules apply.

The VAT reverse charge rules require the customer to include the invoice amounts in their VAT return submission. This can only be done by VAT registered businesses.

Question 4: Will your payment be reported under CIS?

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 VAT reverse charge construction solver will show that normal VAT rules apply when answering NO to this question.

The VAT reverse charge rules only apply for construction work carried out between a CIS registered contractor and a subcontractor.

Question 5: Customer confirmed they are the end user?

The consumer or final customer is the end user. This would 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 VAT reverse charge rules only apply within a continuing supply chain. The end user breaks the supply chain.

VAT reverse charge 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 VAT reverse charge 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.

VAT Changes for Construction Industry

CIS Helpsheets

At Patterson Hall Chartered Accountants we are experts within all aspects of the Construction Industry Scheme. We have produced an ultimate guide to all things CIS with many user friendly helpsheets and examples. Take a look at our CIS Accountants guide.

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