Understanding the reverse charge

Having been pushed back a couple of times, the reverse charge was introduced on 1 March this year. It is a mechanism that only affects VAT registered businesses and those involved in the supply of building and construction services.

Reverse charge has been introduced by the Government to tackle VAT fraud in the construction industry and means, in simple terms, that the customer receiving services will now have to pay the VAT, instead of the supplier of the services. From 1 March, you may no longer need to charge VAT to your customers or be charged it by your suppliers.

This domestic reverse charge only applies to supplies of building and construction services that are subject to VAT at the standard or reduced rates that also need to be reported under Construction Industry Scheme (CIS). The list of what supplies are included and, indeed, excluded, is extensive but, here at Lewis & Co, we can advise you.

If you are supplying a service that meets the criteria for the reverse charge, you are now not required to charge your customers VAT. It’s not as simple as that, as you will need to validate that you are CIS and VAT registered and not an end user.

Any invoices must also make it clear that the reverse charge applies and the customer is required to account for the VAT. The invoice should note the amount of VAT due under the reverse charge (or the rate). But, to confirm, the VAT must not be included in the amount charged to the customer.

If you are receiving a service that meets all the criteria for the reverse charge and you are VAT and CIS registered and not an end user, you should not be charged VAT by your supplier.

If you run a business within the CIS, we can advise you whether you should be charging VAT or not and how this will impact your VAT returns. It might be that you find yourself in a VAT repayment situation and may want to consider moving from quarterly to monthly VAT returns. Equally, if you are a tradesman or sub-contractor and are unsure whether reverse charge applies to you, then we can help.

It’s also worth reviewing the contracts you have with customers and suppliers to see whether they are impacted by the reverse charge.

If you have any questions, please contact us on: 01892 513515 or email info@lewisandco.biz