The reverse charge is designed as an anti-fraud measure that will be introduced on 1 March 2021. Building contractors will no longer pay VAT to their sub-contractors, but will account for it themselves. The idea is to deny the sub-contractor the opportunity to collect the VAT and disappear with it, rather than paying it over to HMRC! See link below for more details.
HMRC Guidance - When you must use the VAT reverse charge for building and construction services
The reverse charge is intended to be applied by businesses who are making onward supplies of building work and not by final customers. As an “end user”, the University should not be affected and should continue to be charged VAT in the normal way by all its building contractors/sub-contractors. It may be asked by building contractors to confirm its end user status.
Oxford University Fixed Assets Limited
OUFAL falls into the category of being an “intermediary supplier” to the University. As such it is included in the new scheme and will self-account for VAT on construction services under the domestic reverse charge. OUFAL is able to opt out of the scheme but there is a considerable cash-flow benefit of being included.
Therefore we expect that OUFAL’s building contractors will not charge VAT on their invoices to OUFAL after 1 March. Instead, OUFAL will apply the reverse charge to their invoices after that date. However, OUFAL’s invoices to the University will not be affected.
Note that OUFAL’s other suppliers of non-construction services will not be affected by the changes and should continue to charge OUFAL VAT in the normal way.