The way VAT is paid for construction industry services is changing as the government tries to cut down on tax fraud.

When the domestic reverse charge is used, it means VAT should be paid directly to HMRC instead of paying it to the person or company supplying the service.

However, it only applies in certain circumstances, and does not cover consumers. So if you carry out work for a homeowner and VAT applies, you should continue to charge it and report it to HMRC in the normal way.

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When does the domestic reverse charge apply?

Three construction industry workers looking at plans

The charge applies if you:

  • are registered for VAT in the UK
  • supply or receive services that are reported under the Construction Industry Scheme (CIS), such as building work or installing lighting and heating systems
  • are buying construction services from or supplying them to another VAT-registered business who is not the end customer (eg you’re employing sub-contractors or you work as a sub-contractor).

What should you do if the charge will apply to you?

You should prepare for the changes on 1 October by:

  • reading the government’s guidance on the domestic reverse charge
  • checking whether your customers or suppliers are VAT registered
  • checking whether the charge affects your sales, purchases or both
  • making sure your accounting systems are updated and your staff are up to speed
  • consulting your accountant or a tax specialist if you have any questions or concerns.

HMRC has said it will apply a ‘light touch’ if people make mistakes with the charge during the first six months, as long as they are trying to follow the rules and ‘have acted in good faith’.

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