Big changes are coming to the way in which VAT is administered to the construction industry.

From 1 March 2021 the CIS VAT Domestic Reverse Charge Measure will apply to supplies of construction work.

Proposals:

  • When the reverse charge applies the customer must account for the supplier’s output VAT
  • This measure only applies to construction supplies made by a business to a business (B2B)

The reverse charge needs to be applied when the following conditions are met:

  • supply consists of construction services and materials
  • made at a standard or reduced rate of VAT
  • between a UK VAT registered supplier and UK VAT registered customer
  • Both supplier and customer are registered for CIS
  • customer intends to make an ongoing supply of construction services to another party
  • supplier and customer are not connected

It does not apply to any of the following supplies:

  • VAT exempt building and construction services
  • Those not covered by the CIS, unless linked to such a supply
  • Supplies of staff or workers

Or to taxable supplies made to the following customers:

  • A non-VAT registered customer
  • ‘End Users’ i.e. a VAT registered customer not intending to make further on-going supplies of construction
  • Connected ‘Intermediary suppliers’ e.g. two companies in the same group

HMRC’s aim is to reduce VAT fraud in the construction sector.

It will require a significant change of approach in many CIS businesses:

  • Staff need to be trained to identify relevant CIS contracts and End-Users
  • Bookkeeping systems need to be modified to cope with the new invoicing and reporting obligations
  • Use of the VAT Flat Rate Scheme and Cash accounting may not be possible
  • Cash flow will be affected – those at the start of the supply chain may become VAT repayment claimants & should consider whether to file monthly returns
  • It may require a business that is the recipient of the supply to register for VAT

We are here to help advise on this new measure and its impact to your business.

Please join us at our webinar that explains the VAT domestic reverse charge for building and construction services and what you need to do. Register here

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