After a series of delays, the VAT reverse charge on construction and building services comes into force next Monday, 1 March 2021, with major implications for how VAT is collected in the sector.
From Monday VAT-registered subcontractors performing qualifying “construction operations” will not charge VAT on its services to main contractors. Instead, the main contractor will pay the VAT over to HMRC on the subcontractor’s behalf.
ICAEW’s Tax Faculty advises that VAT-registered construction firms liable for the charge need to have:
- procedures to ensure that there is agreement between suppliers and customers over their status and the correct VAT accounting treatment;
- updated accounting systems to ensure that the correct invoicing procedures are adopted according to the rules in operation at the time of supply; and
- ways to manage the effect of the new rules on the business’s cashflow.
Further support:
- Webinar recording: CIS VAT reverse charge (free for Tax Faculty and Faculties Online subscribers).
- HMRC guidance: “Check when you must use the VAT reverse charge for building and construction services”.
- TAXline August 2020: “Tax and the construction industry”.
Webinar: CIS VAT reverse charge
On 3 February, Neil Warren explained the CIS VAT reverse charge, covering: VAT returns and invoices, what checks should suppliers make on customers and vice versa, what is the “5% disregard” and when will it apply. Attendees will be able to ask questions. Tax Faculty members and Faculties Online subscribers can watch the recording.
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