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.
- 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.