In the most significant change to the treatment of VAT in the construction industry in a generation, the VAT domestic reverse charge goes live on 1 March. The government has accordingly rejected the latest attempt by the Federation of Master Builders (FMB) and others to put a stop on this, and the additional administrative and (for some) cash flow burdens that the reverse charge will entail will need to be managed at a time when the industry is already struggling with the challenges posed by the pandemic and Brexit.

The change has been made in order to reduce “missing trader” fraud, which is estimated to result in lost VAT revenue of around £100m each year. This issue is by no means unique to the construction industry, and the direct charge has applied for some time to the sale of certain items in the UK including microchips and mobile phones. Further afield, a majority of EU member states apply their version of the domestic reverse charge to their own construction industries.

The reverse charge covers all “construction operations” as defined by the Construction Industry Scheme, from the construction, alteration, repair or demolition of buildings or structures and infrastructure such as roads, railways and waterways, to trades such as painting and decorating.

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