Domestic reverse charge for building and construction services

To reduce the amount of fraud within the construction industry, the new domestic reverse charge will soon come into force.

From 1 March 2021, sub-contractors will not need to charge VAT on their supply of both labour and materials to contractors if:

• the sub-contractor is registered for VAT

• the contractor is registered for VAT

• the service performed is within the scope of CIS

If all the above applies, the sub-contractor should state 'CIS reverse charge applies' on their sales invoice and not add VAT.

Instead, the contractor will account for the VAT by including the VAT in both box 1 and box 4 of their VAT returns. Including the reverse charge on their VAT return will have no effect on their VAT liability.

Zero rated sales, eg construction on new buildings, are excluded from the domestic reverse charge.

HMRC have a flowchart that you can use to determine whether this applies to your supply:

www.gov.uk/guidance/vat-reverse-charge-technical-guide#flowcharts