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VAT reverse charge and the flat rate scheme

Kevin Mileham

VAT reverse charge and the flat rate scheme

There are special VAT rules for building contractors and sub-contractors that came into effect on 1 March 2021. The new rules make the supply of most construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge only applies to supplies of specified construction services to other businesses in the construction sector.

This means that since 1 March 2021, sub-contractors no longer add VAT to their supplies to most building customers, instead, contractors are obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the domestic reverse charge.

There is an interesting exception for users of the flat rate scheme that means that reverse charge supplies are not to be accounted for under the scheme. Flat rate scheme users who receive reverse charge supplies therefore must account for the VAT due to HMRC and recover it simultaneously on the same VAT Return. Users of the scheme should consider if it’s still beneficial for them bearing in mind that under the scheme they cannot recover VAT incurred on purchases of materials and other expenditure subject to a VAT charge.

Registering for VAT

You must register your business for VAT with HMRC if the VAT taxable turnover is more than £85,000.

When you register, you will be sent a VAT registration certificate. This confirms:

  • your VAT number,
  • when to submit your first VAT Return and payment,
  • your ‘effective date of registration’ – this depends on the date you went over the threshold or is the date you asked to register if it was voluntary.

You can register voluntarily if your turnover is less than £85,000 unless everything you sell is exempt.

You can reclaim the VAT you may have paid on certain purchases made before you registered.

We have some excellent VAT resources for your business on our resources page. If you are looking to get a better overview on all things VAT in an easy to understand breakdown – read our amazing guide on VAT here.

Is your VAT getting confusing now and not sure how to use the flat rate scheme? Get in touch with us today and let us take the heavy lifting from you.

Source: HM Revenue & Customs Tue, 02 Nov 2021 00:00:00 +0100


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