23 February 2021: With the VAT domestic reverse charge for construction services coming into force in less than a week, ICAEW’s Tax Faculty is urging affected firms to make sure they are prepared.

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”.