Domestic Reverse Charge: The final countdown for buildersby
Neil Warren considers which builders will be affected by the new VAT domestic reverse charge (DRC) regime in the construction industry, which is due to come into effect on 1 March.
Never say never in the world of tax but I am confident that the new domestic reverse charge rules will definitely happen.
On 5 January a government spokesperson confirmed: “The government is committed to implementing the reverse charge on 1 March.” The previous start dates of 1 October 2019 and the 1 October in 2020 were rightly postponed by HMRC for various reasons. The countdown to 1 March 2021 has started.
The reverse charge rules often cause confusion. In brief the customer accounts for output tax in box 1 of their VAT return, based on a VAT exclusive invoice received from a supplier. If the supplier does not charge VAT in the first place, and is not therefore paid VAT, he cannot pocket the VAT money and disappear without paying it to HMRC.
That is the intended outcome of the DRC regime: to reduce VAT fraud in the construction industry.
In the case of builders supplying services, there are five key questions to ask. If the answer to the first four questions is ‘yes’ and ‘no’ to the final question, the reverse charge will apply and no VAT will be charged on sales invoices raised for the job in question, and the customer should account for VAT instead.
- Is the customer registered for the Construction Industry Scheme (CIS)?
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