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VAT reverse charge and the flat rate scheme

Source: HM Revenue & Customs | | 04/11/2021

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.

 

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McAllisters is a partnership trading from Paxton House, 11 Woodside Crescent, Glasgow providing accountancy and tax services and general business advice and is a member of ICAS (Registration No 0342) and an FCA exempt professional firm (No 301235). Its VAT number is 261 3019 94

McAllisters (Scotland) Ltd is a related business providing tax and business advisory services to McAllisters and its clients. McAllisters (Scotland) Ltd is registered in Scotland (Registration number SC146856). Its VAT number is 624 0564 62.

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