Quick facts about the VAT reverse charge

This information is provided as a guide. For the details of exactly how the VAT reverse charge will apply to your business we recommend that you consult with your accountant.

• The VAT reverse charge took effect on 1 March 2021.
• It probably applies if you’re VAT registered in the UK, you supply building and construction industry services, your customer is also VAT registered in the UK, and payment for supply is reported in the Construction Industry Scheme (CIS).
• When VAT reverse charge applies, you invoice your customer only the net amount - you do not add VAT.
• Your customer will only pay you the amount you invoice. 
• Your customer will account for the VAT. 
• This scheme does not apply on improvements to homes or other property where the customer is not VAT registered - typically a home-owner.

There are a number of exemptions from the VAT reverse charge scheme, so it’s important that you take professional advice.

Actions you should consider taking

1. Find out whether the construction projects you’re involved with come under the scope of the VAT reverse charge scheme. 
2. Ensure that your accounting systems can handle the new VAT rules under the scheme. Your accounting software provider should supply an upgrade and relevant information.
3. Make sure that your team members who deal with finance and purchasing matters are fully aware of the scheme and its implications.
4. Assess the impact of the changes on your cashflow. If you’re a sub-contractor on a project where the scheme applies, you’ll no longer be paid the VAT element of your invoices, meaning you’ll receive significantly less cash. However, your VAT return payments will be less.

How we can help

We help construction businesses raise the working capital they need in order to keep paying suppliers and payroll. The funding solutions we can help you with include loans, invoice finance and asset finance. Depending on circumstances, the arrangements can be either secured or unsecured.

If you’re facing a cashflow shortfall because of the VAT reverse charge scheme, or for any other reason, get in touch with us to discuss your options. We’re helping other businesses in the construction sector right now and our specialists understand the issues you face.

Don’t let the VAT reverse charge scheme create a cashflow problem for you. Get in touch today to discuss your options.

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