Independent VAT Consultant
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Four queries on new domestic reverse charge rules for builders

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Are the VAT domestic reverse charge rules for the construction industry working well? Neil Warren considers four questions he has received from accountants.

6th Jul 2021
Independent VAT Consultant
Columnist
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The new reverse charge system, which came into effect on 1 March 2021, means that a supplier of construction services no longer charges 5% or 20% VAT on his sales invoices if his customer meets three conditions:

  • registered for VAT;
  • registered for the construction industry scheme (CIS); and
  • sells on the services in question to his own customer.

The customer will declare output tax in box 1 of his return, claiming the same amount as input tax in box 4. The invoice raised by the supplier builder must show the amount of VAT to be declared by the customer, or at least the rate of VAT.

I have only received four queries on the new rules from accountants since 1 March 2021 – that’s about 500 less queries than I have had about Brexit!

Are supplies of building materials subject to the reverse charge?

A builder buying materials from a construction company was rightly confused that he was not being charged VAT on his purchase invoice and being told to account for the reverse charge. The reverse charge applies to materials supplied by a builder as part of his work but not materials bought on a stand-alone basis without services.

The error was eventually corrected by the supplier, who seemed to have decided that all supplies to a CIS/VAT registered customer fell within the reverse charge system, irrespective of whether they involved building services.  

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Replies (3)

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By RU553LL
08th Jul 2021 12:35

Neil,
Notwithstanding your point regarding retentions. If the original invoice was gross and the customer witheld 5% retention. The retention then becomes payable after DRC. The DRC is not applicable as tax point was the original invoice date, surely.

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By FayeBK
09th Jul 2021 08:03

An interesting but slightly concerning scenario I am currently dealing with is one where a client's supplier has refused to ever register for the CIS scheme. Apparently trading for many years this way. My client has received an invoice from them with VAT charged at 20% and challenged it.
The key part of the HMRC flowcharts which my customer is using as an argument is Q2: Is the supply received within the scope of CIS.
The services they are supplying do fall within the scope of CIS, regardless of whether the supplier is actually registered for it, but more clarity is needed by HMRC because my client is being met with "it just says I need to be registered for CIS in order for DRC to apply, which I'm not".

Sigh.

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Replying to FayeBK:
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By johnjenkins
15th Jul 2021 11:01

What would make more sense is that all vat registered business do not charge vat between themselves. The only charge is to customers that aren't vat registered. Solves the problem, considering VAT is not supposed to be a tax on business.

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