With the global COVID-19 pandemic affecting so many aspects of our lives during 2020, many planned changes to government regulations have either flown under the radar or been quietly delayed. One of these is the VAT reverse charge, which had already been pushed back to October 2020 before being delayed again by a further six months.
Despite the delay, many in the construction industry are still playing catch-up when it comes to understanding and preparing for the changes. Now that March 1st 2021 is fast approaching, it’s time to consider whether your business is ready.
What is the VAT reverse charge?
The government is changing the way that HMRC collects VAT payments.
Until now, businesses in the construction industry would usually charge VAT when selling their materials or services, regardless of whether they’re dealing with clients, contractors, subcontractors, etc.
As of March 1st 2021, suppliers will not be allowed to charge VAT unless they are supplying services to an “end-user”. For those transactions, they must only invoice for and collect the amount excluding VAT. Instead of paying the VAT to the supplier, the customer will pay the VAT directly to HMRC.
Who is classed as an “end-user”?
Final customers are referred to as “end users” in the guidelines. Anyone who will either use, rent or sell the structure in question is an end-user, so for example:
- Domestic householders
- Local authorities
- Utility companies
Of course, this is made a little more complicated by the fact that “intermediary suppliers” are also treated as end-users, so if you deal with those, you can continue to charge them VAT too.
Your customer should confirm in writing that they are an end-user – we’ll come back to that point later. HMRC’s technical guide offers some further clarification on this distinction and what you should do to determine how your customers should be classified.