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Construction Industry VAT Reverse Charge

Construction Industry VAT Reverse Charge

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Hi,

A client supplies and fits kitchens as a subcontractor for new build developers (typically 10-50 plots per site).

Up to now, the new build supply has been mainly zero rated with VATable appliances etc.

Two letters have come in from developers highlighting the new reverse charge with pointers to guidance and one has suggested that VAT should no longer be charged by my client at all under the new rules.

My understanding is that the new rules do not apply to zero rated new build contracts and HMRC VAT Reverse Charge Technical Guide point 16  says 'The reverse charge does not apply to standard rated items which are included in a zero-rated supply of building and construction services, for example the supply and incorporation of ovens and hobs' and  'The standard rate of VAT is due on the value of goods not ordinarily incorporated in new build housing. When these goods are supplied and installed in new build housing, the reverse charge does not apply and standard rate VAT should be charged.'

The letter is from the developer’s financial controller and says that invoices with VAT will be rejected from 01/03/21 ‘as they will be deemed to fall under domestic reverse charge rules’ so I want to make sure that my view is correct before going back to my client.

The letter is from a decent sized business…………so now doubting myself!

Replies (10)

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By garforth
23rd Feb 2021 13:41

I would agree with developers financial controller. My understanding which is probably wrong is that your client should prepare invoice in usual way and state rate of vat but don't charge it.

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RLI
By lionofludesch
23rd Feb 2021 13:57

Is this standard rated stuff on an invoice of its own ?

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By lesley.barnes
23rd Feb 2021 13:59

I read the guidence the other way -

"The reverse charge does not apply to standard rated items which are included in a zero-rated supply of building and construction services, for example the supply and incorporation of ovens and hobs." The OP customer is supplying zero rated services with the exception of appliances fitted as part of the kitchen.

Is the contractor saying these goods are not normally included in new builds perhaps?? I would ask your client to find out which part of the guidence the financial controller is refering to.

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Replying to lesley.barnes:
RLI
By lionofludesch
23rd Feb 2021 14:04

Quote:

I read the guidence the other way -

"The reverse charge does not apply to standard rated items which are included in a zero-rated supply of building and construction services, for example the supply and incorporation of ovens and hobs." The OP customer is supplying zero rated services with the exception of appliances fitted as part of the kitchen.

Is the contractor saying these goods are not normally included in new builds perhaps?? I would ask your client to find out which part of the guidence the financial controller is refering to.

The reason I asked whether the goods are on an invoice of their own is that I seem to recall an exception where the invoice includes both zero and positive rated supplies.

Of course, Anonymous will have to give up his anonymity to let us know the answer.

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Replying to lionofludesch:
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By CWservices6064
23rd Feb 2021 14:53

Anonymity forgone.........the invoices will include zero rated and VATable items

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Replying to CWservices6064:
RLI
By lionofludesch
23rd Feb 2021 16:38

Have a look at section 7 of this.

https://www.gov.uk/guidance/vat-reverse-charge-technical-guide#services-...

Particularly the bit about supply and fix.

I think this is where your customer's confusion arises.

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By doubletrouble
23rd Feb 2021 14:00

Is it not only free standing ovens and fridges that are standard rated ?integrated would be zero rated along with the fitting of kitchen

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Replying to doubletrouble:
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By CWservices6064
23rd Feb 2021 14:56

VAT notice 708 13.9 includes 'free-standing and integrated appliances such as cookers, fridges, freezers, dishwashers, microwaves, washing machines' as not ordinarily incorporated in dwellings.

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Jason Croke
By Jason Croke
23rd Feb 2021 16:37

First thought is, size doesn't matter. Large businesses can just as easily get VAT wrong as little businesses (Uber?).

Second thought is that reverse charge is not as simple as telling suppliers "don't charge me VAT". Has your client pointed out section 16 of the HMRC technical guidance?

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Replying to Jason Croke:
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By CWservices6064
23rd Feb 2021 17:13

Thanks.

So not within reverse charge at all?

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