How will the new VAT changes affect the construction industry?

HMRC’s domestic reverse charge VAT rules for construction services were scheduled to come into force on 1st of October 2020. The government has announced that it will delay the implementation until 1st March 2021.

The government has decided to delay the changes due to industry professionals raising concerns that not all businesses in the construction sector are ready to implement VAT domestic reverse charge for building and construction by October 2020.

What is changing with VAT in the construction industry?

Where the legislation applies:

  • The supplier of construction services will no longer receive the 20% VAT when submitting invoices.
  • The customer is now responsible for paying VAT to HMRC for services received. This can then be recovered as input tax under the usual rules.

What transactions will the reverse charge apply to?
The reverse charge will apply to the supply of specified construction services between VAT registered businesses, where the recipient then makes an onward supply of the services.

When will the reverse charge apply from?

The change in legislation will be implemented from 1st March 2021.

What if invoices have already been changed?

HMRC has stated it recognises businesses that have already begun preparation and altered their invoices to fit the reverse charge vat requirements and may not be able to change them back in time.

If businesses have already set up a monthly VAT return option, they can reverse this on the HMRC website.

Need further information?

Visit the Government Website to find out more reverse VAT changes and how to prepare for them by March 2021.


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