HMRC Taxes

NHS Domestic Reverse Charge in Construction

by Berthold Bauer on February 23, 2021

From the 01 March 2021 HMRC’s domestic VAT reverse charge comes into force for most standard-rated (20%) and reduced-rated (5%) building and construction services.

The effect on the NHS is anticipated to be minimal, with most purchases unaffected because it will only affect organisations that are a) Construction Industry Scheme (CIS) registered and b) make onward supplies of construction/building work.

How will it affect the NHS?

End-Users and Intermediaries

In most everyday circumstances it is likely that the NHS will be classed as either a) an ‘end-user’ or b) an ‘intermediary supplier’. This means that VAT will continued to be accounted for in the normal way by the Supplier on an invoice i.e. no reverse charge adjustment is required.

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.

Intermediary suppliers

Intermediary suppliers are VAT and Construction Industry Scheme registered businesses that are connected or linked to end users. If intermediary suppliers buy construction services and re-supply them to a connected or linked end user, without making material alterations to the supplies, they’re all treated as if they’re end users and the reverse charge does not apply.

To be connected or linked to an end user, intermediary suppliers must either:

  • have a relevant interest in the same land where the construction works are taking place, for example, landlord and tenant
  • be part of the same corporate group or undertaking as defined in section 1161 of the Companies Act 2006

[ref: HMRC VAT reverse charge technical guide here]

It is important that where you consider yourself either an ‘end-user’ or ‘intermediary’ you confirm this in writing to your construction/building contractors to ensure that VAT is continued to be accounted for in the normal way. We would recommend that this is considered at the earliest opportunity on construction/building projects to avoid any potential confusion when the works are started/invoices are raised to the Trust.

Non End-User or Intermediary Status

Where you are not considered either an ‘end-user’ or ‘intermediary supplier’, there are instances where the status of your organisation may affect the application of the reverse charge due to apparent differences in legislation. For example, NHS Foundation Trusts appear to be specifically excluded from the Construction Industry Scheme (CIS), and as a pre-requisite of the domestic reverse charge applying is that you are CIS registered, it is not likely to impact NHS Foundation Trusts. Other NHS organisations, with an obligation under the CIS, may however fall within the guidelines.

Onward supplies of construction/building work

In situations where you make onward supplies of construction/building work, we recommend that you contact us directly for advice in relation to your specific circumstances.

If you have any queries or concerns about how the guidance will apply to you in practice, please contact your BBVAT consultant directly or via the Free Helpline here.

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