VAT - Reverse Charge on Construction Services - Invoicing

Questions have arisen about invoicing issues in the context of VAT reverse charge on construction services. The purpose of this e-Brief is to draw attention to the rules which are set out in the Revenue leaflet on invoicing and to emphasise a number of those rules to ensure the correct application of VAT reverse charge within the construction industry.

Invoicing - When an invoice should be raised

Paragraph 13 of the leaflet deals with the time limits for issuing VAT invoices. The rules relating to VAT invoices also apply to reverse charge invoices. A reverse charge invoice should be raised within 15 days of the end of the month in which the supply of the service is completed.

Where a contract involves payments in advance of completion (e.g. deposit, progress payments, instalments) the invoice must be raised within 15 days of the end of the month in which such a payment is made. VAT should be accounted for in the return for the period in which the invoice is raised or should have been raised. A claim by a sub-contractor for payment in advance of completion should not take the form of an invoice.

Settlement vouchers/self-billing arrangements

Paragraphs 10 & 11 of the leaflet deal with settlement vouchers and self-billing arrangements. Settlement vouchers or self-billing arrangements should only be used where there is agreement between the principal contractor and the sub-contractor. Therefore, if a sub-contractor raises a valid reverse charge invoice on completion of a supply, the principal cannot disregard this by accounting for VAT on the basis of self-billing/settlement vouchers. VAT should be accounted for in accordance with the date of the invoice raised by the sub-contractor.

If, in the absence of a settlement vouchers/self-billing agreement, a principal makes a payment which is less than the amount invoiced by the sub-contractor, the sub-contractor should issue a credit note for the difference.

Invoice issued before and payment made after 1 September 2008

If, prior to 1 September 2008, a sub-contractor raised a VAT invoice on completion of a supply, the sub-contractor is accountable for that VAT and the principal should pay the VAT to the sub-contractor even where payment is made on or after 1 September 2008.

However, if prior to 1 September 2008, a sub-contractor raised a VAT invoice where a progress claim should correctly have issued (i.e. the supply was not complete), then the principal should account for the VAT if the payment is made on of after 1 September 2008. Where this situation arises, the sub-contractor should issue a credit note and make the adjustment in the relevant VAT return.

Retention Money

If a contract provides for a period of retention, the invoice in respect of retention money should be raised wthin 15 days of the end of the month in which the guarantee period expires. VAT should be accounted for by reference to the date the invoice is raised or should have been raised.