The VAT ‘domestic reverse charge’ for construction industry businesses came in on 1 March 2021. It changes how VAT must be accounted for on construction-related services provided by sub-contractors.
Where the rules apply, VAT-registered sub-contractors still issue VAT invoices, but do not actually charge VAT. Instead, the invoices will state that the reverse charge applies and show the amount of VAT that must be accounted for by their customer. No VAT is therefore payable to the sub-contractor; instead, the customer accounts for both the output tax and input tax through their own VAT return.
These changes have major consequences and give plenty of scope for errors to occur. Note, in particular, that sub-contractors who have previously used the VAT Flat Rate Scheme will very likely now be better off outside the scheme.
