VAT Reverse charge on Construction Services
The VAT Reverse charge on Construction Services is being introduced by HMRC from 1st March 2021 in response to organised criminal attacks on the VAT system in the construction sector.
If you deal in Construction, you will need to be aware of the changes being brought in by HMRC and it is important you plan ahead for them as they could impact on your cashflow.
The new rules effect supplies between sub-contractors and contractors on construction work (as defined by CIS) which would normally be invoiced at the standard or reduced VAT rate (note that zero rated supplies remain unchanged).
These supplies will be subject to the reverse charge unless they are supplied to a contractor who is an end user or a non VAT registered customer.
“Reverse Charging” in practical terms will mean that, if you are a subcontractor, you will no longer charge VAT to your customer providing that they confirm that they are not the end user of the supply chain.
It also means that your subcontractors who are VAT registered will not charge you VAT either.
The VAT invoices you will send to your customers will also need amending as well as the invoices subcontractors send to you.
Although you will have to account for output tax on the supplies that your suppliers make to you, you will also reclaim it back, so this should be at no cost to you.
IT IS VITALLY IMPORTANT THAT YOU DO NOT PAY VAT OVER TO SUBCONTRACTOR SUPPLIERS UNLESS IT IS PROPERLY CHARGED. HMRC will refuse input tax claims which are not charged correctly.
The following headline implications are important:
You will need to identify whether your customer is the ‘end user’ – this will determine whether you charge them VAT or not.
- You will not be paid any VAT from your customer and this may impact on your cash flow.
- You will still have to pay out VAT on materials.
- You may become a regular refund business, and it may be an advantage to register to file VAT returns Monthly.
- You will need to prepare and you may need to change the way that your software works. We can assist you with these changes.
- You will need to educate your subcontractors. We can provide a sample text which you could amend and send to them.
The changes apply from 1st March 2021.
The HMRC website has more detailed information, which you can have a read through on this link: https://www.gov.uk/government/publications/vat-reverse-charge-for-building-and-construction-services-guidance-note/guidance-note
If any of the above effects your business and you need assistance, please contact Gordon Gruppetta on 0113 257 4506 for a free no obligation discussion or send an email to firstname.lastname@example.org