VAT for Construction Companies and Builders
Reverse Charge VAT for Construction Services
An agreement by the government in September 2019 was reached to delay reverse charge VAT for construction services by a year until October 2020.
A major change to the way VAT is collected in the building and construction sector comes into effect on 1 October 2020. The change is called the VAT domestic reverse charge (or the reverse charge) and means the customer receiving the service will have to pay the VAT due to HMRC instead of including it as part of the payment to the supplier when settling the invoice.
The main aim of the new regulation is to tackle missing trader fraud, where VAT charged to a customer is not reported and paid over to HMRC. It is hoped that this will stop fraud worth over £100 million per annum.
What Type of Building Work Requires Reverse Charge VAT
The type of work which will fall within the reverse charge includes construction, alteration, repair, extension and demolition of buildings. It also applies to works that form part of the land, like roads, railways, sewers and coastal defences. It will also cover the installation of systems for heating, ventilation, drainage and preparatory services. Services that will not be affected include architect services and the manufacture of building components, materials and plant.
The VAT reverse charges do not mean that construction subcontractors can avoid being VAT registered where they do not meet the threshold.
There is an additional responsibility to those in the construction industry to ensure they do not pay VAT to a subcontractor in circumstances where they should be reverse charging. This responsibly should be taken seriously as the financial implications of paying this VAT over to HMRC at a later date would be significant. Other responsibilities falling on the construction contractor includes needing to know whether they are dealing with the final customer. The reverse charge only applies between businesses in the construction supply chain and not to the end/final consumer.
If you are unsure about any of the changes, please speak to a tax advisor or accountant to clarify your situation.
Our preferred accounting partner is Cobia accountants. We have a special introductory offer for our clients of a free accountant callback to answer your questions. And a free month of their services, so you can try before you buy! Simply check the box when you form your company and they will contact you. Alternatively, call or email our customer support and they can arrange the callback for you:
Call us free on 0800 988 3223 or email us at info@blueskyformations.com
VAT Essentials for Construction:
Should a builder be VAT registered?
The rules regarding VAT registration remain the same as any other sector (currently £85,000 turnover per annum). You must still issue a VAT invoice stating they are subject to the reverse charge.
How much VAT should be charged for Construction Services?
VAT charge for construction services for most work on houses and flats by builders and similar trades like plumbers, plasterers and carpenters. VAT is chargeable at the standard rate of 20%.
Except if it meets certain conditions:
Zero rate VAT
- building a new house or flat,
- working on the homes of disabled people.
Reduced rate VAT
You may be able to charge the reduced rate of 5% for some types of construction work including:
- installing energy saving products and certain work for people over 60
- converting a building into a house or flats or from one residential use to another
- renovating an empty house or flat
A good accountant will be able to advise you on VAT charges and the new scheme. We offer a VAT registration service when you form your company for only £30. We also have a special accountancy offer for our clients. One free month of accountancy services from our preferred partner. So you can try before you buy! Simply check the box when you form your company and they will contact you. Alternatively, call or email our customer support and they can arrange the call-back for you:
Call us free on 0800 988 3223 or email us at info@blueskyformations.com