Domestic Reverse Charge VAT – What does this mean for you?

In this article, we look into what Domestic Reverse Charge VAT for building and construction services is, what this means specifically for you and how Eque2 can help you prepare for the deadline.

What is it?
From 1st March 2021, the government will enforce a domestic VAT reverse charge for building and construction services to prevent any ‘missing trader fraud’ from occurring. This usually occurs when a supplier issues a VAT invoice and collects the VAT from their customer without declaring it to HMRC and is projected to cost the Exchequer £90m from 2019-2020.

For this reason, the new VAT reverse charge will place the onus on the customer or contractor to declare the VAT, removing the chance for undeclared finances to ‘go wandering’. The new legislation will require the main contractor rather than the subcontractor to account for the VAT due on certain construction services. Under the new rules, any business supplying construction services must not charge VAT on their invoices and instead, the recipient of the services must account for the VAT which is the process known as ‘reverse charge’.

Below you will see an example of a standard report that doesn’t separate out the domestic VAT reverse charge, and the second report highlighting the charge (click on the images to enlarge).

When does it apply?
The new domestic reverse charge will apply to construction services where goods are supplied, such as general construction, groundwork construction, decorating of buildings and structures, renovation and maintenance, HVAC, cleaning services and painting. Exceptions include: architect services, certain supplies between landlord and tenant, zero-rated supplies and installation of security systems.

The VAT reverse charge is solely for VAT-registered businesses supplying construction services. Therefore, it does not extend to any final customers, i.e. property owners.

Using the flowchart below you can see how you would decide whether to apply normal VAT rules or apply the domestic reverse charge.

How does it affect me?
Adaptations need to be made to accounting systems to deal with the Domestic Reverse Charge VAT before 1st March 2021. We are pleased to advise that the functionality is already available for customers using any Eque2 construction management solution.

For further information regarding configuration requirements, or to watch one of our on-demand webinars, please visit our online customer Knowledge Base.

Your standard reports will be ready in the new format, but any custom reports will need updating and we can assist you with this. Please fill in the form below as soon as possible with the required details so a member of our team can get in touch to understand your requirements.

Interested in learning more about construction-specific management software?

Eque2 are proud to be recognised as the market-leading supplier of business management software to the construction, contracting and house building industries, with over 2,750 customers in the UK and Ireland. We provide a unique range of construction-specific software solutions that cater for businesses of all types and sizes.

Whether you are interested in learning how to improve the way you manage your estimating, financials, contract management/job costing, house building or post-contract processes, our range of solutions built within and alongside familiar best-of-breed Microsoft and Sage that caters for CIS, Making Tax Digital and Reverse Charge VAT. Please get in touch to arrange to discuss your challenges and organise a free non-obligatory online demo today by calling us on 0161 939 0111 or by emailing us at [email protected].