From 1st March 2021 HMRC are introducing major changes on how VAT is charged in certain aspects of the construction industry. These ‘reverse charge VAT accounting’ rules mean that VAT will no longer be paid to the HMRC by the supplier, instead the liability will be with the customer. Affected businesses will now need to produce invoices that are subject to a reverse VAT charge.

Why is this Action Being Taken

These rules are being brought in to tackle VAT fraud in the construction industry by making the customer responsible for VAT rather than the supplier.

Who Will be Affected

The new rules will apply to the same construction services currently covered by the Construction Industry Scheme (CIS). It will apply to VAT registered businesses where the recipient makes an onward supply of the same construction services.

These new rules won’t apply where:

  • The supplies are zero-rated or to non VAT registered customers.
  • The supplier and recipient are the landlord and tenant or vice versa.
  • The customer makes onward supplies of those construction services to a connected company.
  • Services are supplied to the end-user such as the property owner.

What Action Should be Taken

Firstly businesses will need to establish whether the supply of their services is subject to a reverse charge. If this is the case businesses will need to ensure their accounting systems are set up correctly to deal with this. Most accounting software has made the necessary changes and published guidance on how to process. Subcontractors and small construction businesses will need to be aware that they cannot rely on VAT repayments for cash flow and plan accordingly.

If you’re concerned about the upcoming changes and want to get a handle on your affairs, then we strongly encourage you to get in touch with us on 0161 399 0121 if you live in Greater Manchester or 0151 303 3112 if you live in Liverpool or the surrounding areas of St Helens, Widnes & Southport.