How does VAT work in construction?

Value Added Tax (VAT) is a tax added to the cost of certain goods and services. It is only accountable where the party raising an invoice is VAT registered. In the design and construction sectors most supplies are ‘standard-rated’ and therefore VAT is added to the value of supplies at the prevailing rate of VAT.

Is construction VAT exempt?

Construction services themselves are never VAT exempt, but the VAT rate can vary depending on the work being done and the type of property. The services supplied in the course of the construction or conversion of the buildings above (other than those specifically excluded – see standard rated section).

Do building contractors pay VAT?

Suppliers are no longer required to charge or receive VAT from their main contractor customers. Instead, main contractors effectively charge themselves VAT on subcontractors’ services, and pay the VAT sums that would have been paid to the subcontractor direct to HMRC in their VAT returns.

Are house builders end users?

It is a business who will use the building or structure themselves in their own business either as a building to sell, or to rent out, or for their own use e.g. as offices. Development and property companies and housebuilders are end users because they will rent or sell what they have commissioned.

Is the main contractor the end user?

What is an End User? In Management Contracting the business that is responsible for providing the building or structure to the End User is usually the main or tier 1 contractor. In Construction Management the businesses responsible for providing the building or structure to the End User may be specialist contractors.

How does reverse VAT work?

The reverse charge is a mechanism for accounting for VAT whereby the customer charges themselves VAT, rather than the supplier charging VAT. As the reverse charge makes it the customer’s responsibility to account for VAT there is no opportunity for the supplier to disappear without paying the VAT to HMRC.

Are builders end users?

For reverse charge purposes consumers and final customers are called end users. They’re businesses, or groups of businesses, that are VAT and Construction Industry Scheme registered but do not make onward supplies of the building and construction services supplied to them.