Let's talk about something that might make your head spin but is crucial for your business – VAT. Don't worry, we're going to break this down into bite-sized, digestible pieces that'll help you navigate the complexities of VAT in construction.

The Construction Industry VAT Basics

First things first – if you're in construction and your annual turnover exceeds £90,000, you'll need to register for VAT. But here's where it gets interesting: The construction industry has some special VAT rules that you need to know about.

Understanding the Domestic Reverse Charge

Since March 2021, the construction industry has been dealing with the domestic reverse charge (DRC). Here's what that means in plain English:

• The customer accounts for VAT, not the supplier

• Applies to most construction services between VAT-registered businesses

• Helps prevent VAT fraud in the construction sector

When Does Standard VAT Apply?

Not everything falls under the reverse charge. You'll still charge VAT as normal when:

• Working for homeowners or end-users

• Supplying materials only

• Providing services to non-VAT registered businesses

• Working on new residential buildings (zero-rated)

Common VAT Rates in Construction

Let's break down the different VAT rates:

• Standard rate (20%): Most construction work

• Reduced rate (5%): Some renovation works and energy-saving materials

• Zero rate (0%): New builds and some charitable buildings

Top VAT Tips for Construction Businesses

1. Keep Detailed Records

• Document everything – seriously, everything!

• Save all invoices and receipts

• Use digital tools to track VAT transactions (we use QuickBooks or Xero alongside Dext)

2. Know Your Project Status

• Determine if your project falls under DRC

• Identify your customer's VAT status

• Understand which rate applies to your work

3. Cash Flow Management

• Plan for VAT payments

• Consider the impact of reverse charge on your cash flow

• Set aside VAT funds in a separate account

Common Pitfalls to Avoid

• Misclassifying projects

• Incorrect VAT rates

• Late submissions

• Poor record-keeping

• Not verifying customer VAT status

Making VAT Work for Your Business

1. Use Accounting Software

• Automates VAT calculations

• Helps with Making Tax Digital compliance

• Reduces human error

2. Regular VAT Reviews

• Check VAT treatment of projects

• Review customer VAT certificates

• Stay updated with HMRC guidelines

3. Get Professional Help



• Have a chat with us. VAT in the construction industry is a complex matter and you must ensure you’re compliant. Having the best team at hand to support you through this is key

• Stay compliant with changing regulations

• Focus on your core business