VAT Question

TwoUpTwoDown

Hi everyone

My friend asked me a question about VAT on new builds yesterday and I'm not quite sure about the answer.
He is a subcontractor builder and has just started a job on a new build where he has been told he does not need to charge VAT (it is a qualifying build).

He has, over the past few years done work on other new builds but charged VAT as he was not advised that he didn't need to.
The invoices were paid and the VAT was passed over the HMRC as part of his return.

Is he able to go back over the past 3/4 years to work out what shouldn't have been charged and correct it? It would be a material amount c.£100k that he could claim back.

Many thanks

Jeremy535897

Presumably your friend added the VAT to his normal rate when issuing the invoices? If so, he didn't bear the cost of the VAT, but passed it on to whoever paid him.

comeandgo

It’s not up to his customer to tell him the vat rules.  He must read up on them himself.  New builds are zero vat but he is not out of pocket by his mistakes as he charged the customer the vat, then he paid the vat the HMRC, so he is in exactly the same place as he would be if he had not charged vat.

Grumpy_chap

If VAT has been charged at standard rate on new builds when it should have been zero-rated (not just that VAT does not apply), then the customer will still have shown the amount invoiced as input VAT.  If this is now corrected, the original invoices would need to be credited, then new invoices raised at zero-rate VAT, so the result would be money owed to the customer that can then be claimed back via the next VAT-return.

New_Beginnings

The rules on VAT in the construction industry changed in March 2021.

Simply put when working for a contractor the VAT is treated as a reverse charge so the subcontractor doesn't charge it to the contractor providing the contractor provides all the relevant details as per the link below:

w w w.gov.uk/ guidance/vat-domestic-reverse-charge-for-building-and-construction-services (remove the spaces as I can't paste the link)

If your friend uses a software package for their VAT, it should be straight forward to set up, but they do need to get the wording right on the invoice.

Jeremy535897

There is some confusion here. Construction work on new residential builds is zero rated anyway, and that seemed to be what OP was asking about. If we are talking about new commercial builds, however, then the reverse charge may well be the reason that VAT is not charged. The government information is not as clear as this straightforward guide:
https://www.rossmartin.co.uk/vat/vat/4137-construction-industry-vat-reverse-charge-at-a-glance

TwoUpTwoDown

Thanks all for your responses. I have passed these on to my friend and suggested he call a VAT specialist to get specific guidance
I've also passed him the guide on reverse charging

J_B

New_Beginnings said:

The rules on VAT in the construction industry changed in March 2021.

Simply put when working for a contractor the VAT is treated as a reverse charge so the subcontractor doesn't charge it to the contractor providing the contractor provides all the relevant details as per the link below:

w w w.gov.uk/ guidance/vat-domestic-reverse-charge-for-building-and-construction-services (remove the spaces as I can't paste the link)

https://www.gov.uk/ guidance/vat-domestic-reverse-charge-for-building-and-construction-services gives 'page not found'

Savvy_Sue

https://www.gov.uk/government/publications/revenue-and-customs-brief-7-2020-domestic-reverse-charge-vat-for-construction-services-delay-in-implementation

No idea if that helps at all?

Jeremy535897

Take the space out  after gov.uk.
https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services