Construction suppliers to stop charging VAT to customers

From 1 March 2021, the Domestic Reverse Charge (DRC) will be implemented.

This is a fundamental change to the way in which building and construction service providers will charge VAT.

From 1 March 2021, in most cases, VAT will not be charged by the supplier of building or construction services but instead the customer will account for the VAT under the reverse charge mechanism. In effect, this means that customers will declare VAT on their VAT return and, subject to the normal rules, will recover that VAT as input tax on the same return.

The DRC already applies to certain supplies in the UK including mobile telephones, wholesale gas and emission allowances.

However, there are some exceptions. Where the services are supplied to the final customer, or the ‘end user’, VAT should be charged in the usual way. VAT should also be charged if the customer is either not registered for VAT or is registered for CIS. Additionally, employment businesses are not affected by the change.

For more information regarding how the DRC will impact your business, click here to read our advice to clients.

The DRC was originally set to be implemented in 2019, then October 2020 and has been postponed once again as the construction sector has been hugely impacted by the Coronavirus.

We would advise that suppliers must ensure that VAT is not charged and customers should also ensure that they are not charged VAT when they are receiving services affected by the change.

HMRC are likely to disallow VAT that has been claimed incorrectly.

While HMRC may apply a ‘light touch’ to assessments and penalties, for errors made after 1 March 2021 this cannot be guaranteed. We would urge anyone likely to be affected to check that their systems and procedures are able to meet these new rules.

These are the changes as they currently stand and we will monitor all updates from the government and keep this article updated in case of any changes. For more information regarding Coronavirus and the support available, visit our FAQs page.

If you are concerned about the implementation of the DRC and would like to seek advice, contact our VAT partner, Richard Staunton, at rstaunton@geraldedelman.com. Or, you can read more about our VAT services.