Liaison Financial
The reverse charge is a VAT accounting process designed to combat perceived VAT fraud in the construction sector. The scheme was originally due to be implemented on 1 October 2019. However its implementation was delayed as a result of lobbying from the construction sector and subsequently, the impact of the Covid pandemic. The measure now comes into effect from 1 March 2021.
For services that fall within the scope of this scheme, it will mean that suppliers will no longer show VAT on their invoices and the customer, as the recipient of those services, will be responsible for declaring output VAT to HMRC. In the NHS sector the output VAT declared can only be reclaimed as input VAT to the extent permitted by the COS and business activities rules. However, for the reasons explained below, we expect the impact of this change to be minimal in the NHS sector.
Reverse charge VAT accounting will not apply if the NHS body is the end-user of the construction services. End-users are deemed to be entities that do not sell-on the construction services to someone else. In the vast majority of cases NHS bodies will be end-users because construction services will relate to the trust, board, or CCG’s own building projects. Where an NHS body is an end user, the construction company will issue a VAT invoice in the normal way and the recipient will determine the extent of any input VAT recovery under the COS and business activities rules. If you are an end-user, you will be required to notify the contractor of your status. A suggested template for the notification can be found here.
HMRC’s publication on the reverse charge can found in the following links:
https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services
https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services
If you do sell-on construction services to a 3rd party or if, for example, you have created a special purpose subsidiary company that sells-on construction services to its NHS parent or to any 3rd party, then you must comply with the reverse charge requirements.
Should you require any further details about this change, please contact your Liaison VAT advisor.
