NEW VAT RULES FOR CONSTRUCTION UK

Last updated : 25th Jan 2021.

From 1 March 2021 the domestic VAT reverse charge is being introduced and must be used for most supplies of building and construction services.

The charge applies to standard and reduced-rate VAT services:

  • for individuals or businesses who are registered for VAT in the UK
  • reported within the Construction Industry Scheme

What you need to do

You’ll need to:

  • Check when you must use the reverse charge on your sales, purchases or both.
  • Find out how the charge works if you supply services.
  • Find out how the charge works if you buy services.
  • Read more detailed guidance about the reverse charge.

How to prepare

You’ll need to:

  • make sure your accounting systems and software can deal with the reverse charge
  • consider whether the change will impact your cash flow
  • make sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work

If the VAT reverse charge does not apply you should follow the normal VAT rules. 

When you must use the reverse charge

You must use the reverse charge for the following services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

When you must not use the reverse charge

Do not use the charge for the following services, when supplied on their own:

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

HMRC have prepared some flowcharts to help you decide if you need to use the reverse charge.

1. If you sell building and construction services   Click for flowchart

2. If you buy building and construction services    Click for flowchart

We can help

It is essential to prepare your business in advance of these changes. VAT is a complex area of tax and in this article, we have only been able to touch on some of the issues involved with the changes. If you think you are likely to be affected by these changes, Contact us. we can work with you to ensure you are well prepared for the new system.

All this and more

We offer all the above as part of our full Tax Services and Accounting and can also help you with Capital Gains Tax, Inheritance Tax, Retirement Planning, even filling out your Self-Assessment Tax Returns for you.

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