New VAT Rules For Construction Sector Starts on 1 March 2021

New VAT rules are finally due to come into effect this March which will impact on accounting for VAT for transactions in the construction sector. These new rules, which were originally scheduled to start back in October 2019, have already been delayed twice as there was a lack of awareness of the changes in the industry.

The new “reverse charge” system of VAT accounting will affect sub-contractors supplying their services to main contractors in the construction sector.

Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the new reverse charge system, the sub-contractor will not show VAT on their invoice to the main contractor and will not account for output VAT.

This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors, some of whom were allegedly not paying over the VAT charged to HMRC.

The new reverse charge will apply to a wide range of services in the building trade, primarily those activities covered by the construction industry (CIS) payment rules. Note that normal VAT invoices will continue to be issued to domestic customers.

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system when it starts. If you are a sub-contractor using the VAT flat rate scheme, it may be beneficial to leave that scheme as you may be entitled to a VAT refund on your expenses from 1 March 2021.

Construction VAT reverse charge delayed again to March 2021

Due to the impact of the Coronavirus on the construction sector, the UK VAT domestic reverse charge has been delayed until March 2021. 

The VAT reverse charge was due to be introduced in October 2020, and would have seen an end to subcontractors in the construction sector receiving VAT payments in most situations. 

It is the second time we have seen a delay with this scheme, the original date for the changes to be introduced was scheduled for October 2019.

Under the proposed VAT reverse charge system, only the main contractor will collect VAT from the customer to pass on to HMRC, rather than each party in the supply chain paying VAT to HMRC and claiming back their share.

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

Construction Industry Scheme (CIS) - Basic Guide

It is important that contractors and sub-contractors are aware of the requirements and their obligations under the Construction Industry Scheme (CIS).

We have produced a handy guide to the CIS scheme on our website at www.hillmans.co.uk/cis.

Please contact us on 01934 444100 for further information, we would be pleased to assist.