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HMRC have issued guidance on the major changes that are to take place from 1 March 2021 in the Construction Industry within the UK which introduces the concept of the domestic reverse charge (DRC).
This guidance applies to VAT-registered businesses that operate within the CIS. The system does not apply if the supply is zero-rated (i.e., for a new build) but must be implemented for any standard and reduced rate VAT invoices.
If a type of work currently falls within the CIS then it will still fall within the CIS under the new rules. If it is not currently a CIS contract, then these rules will not make if so.
It means that any VAT registered sub-contractor operating within a chain of suppliers will issue their invoices with no VAT charged but with a message on the invoice that states the relevant information on the reverse charge. The final invoice to the ultimate customer does not fall within the DRC as VAT is charged on the whole amount, even if the customer is VAT registered and is registered for the CIS itself. The guidance does advise on how to determine which business in the chain of supply can be the ‘end-user’ and hence outside the DRC.
The reverse charge applies to an invoice that contains both labour and materials. It is also relevant to invoices that are labour only. It does not apply to invoices that contain only supplies of hired materials, nor does it apply to supplies by employment businesses as these are not subject to the reverse charge, even if those supplies are within the scope of CIS.