From 1st October 2020*, VAT-registered subcontractors will no longer charge VAT on certain construction services to another VAT-registered business. Instead, the customer will ‘self-account’ for any VAT due – this is known as the Reverse Charge.
So as a subcontractor supplying your services to a contractor, you will no longer show VAT on your invoice. Instead you will need the following wording on your invoice ‘This supply is subject to the Reverse Charge’. You will therefore have no output VAT to declare on your VAT return for affected transactions. Instead the contractor, will show your output VAT on their VAT return with the input VAT they would normally declare, so in effect it goes in and out on their VAT return.
The Reverse Charge is being introduced in the construction industry to tackle ‘missing trader fraud’. Missing trader fraud occurs when construction companies are formed and deliver services. Rather than pay the output VAT charged on their sales to HM Revenue and Customs (HMRC), they soon close the business and disappear with the VAT they collected from their customers.
This is simply a brief summary of the change and there are lots of other factors that can effect this, so please do read our more detailed guide here
The Reverse Charge is a massive change for anyone involved in the construction industry and will affect almost all businesses in this industry in some way. HMRC will issue penalties for non-compliance. Please contact us today on 0800 0523 555 or use our simple online contact form to arrange a free initial consultation to see how we can help you get through this latest challenge.
* It was originally announced that this would apply from 1st October 2019. This has now been delayed.