Are you prepared for the new VAT reverse charge for the construction industry?

The last year has been challenging for many businesses, and the impact of the coronavirus pandemic has been keenly felt by the construction industry. But it is important to keep on top of future plans, particularly with the delayed VAT reverse charge rules for the construction industry set to come into force on the 1st March 2021.

The new reverse charge rules mean that it will become the responsibility of the suppliers of construction services to account for the VAT that would have previously been charged by their subcontractors.

The aim of the measures is to combat fraud in the sector as HMRC feel that many sub-contractors fail to pay the VAT they collect from their customers.

There are a number of businesses that will not be impacted by the changes. These include:

  • Businesses who are not Vat registered
  • Work undertaken for the End User – are customers that receive the supplies of construction but do not make an onward supply of construction services themselves (developers may be an example).
  • Work on Zero Rated Contracts
  • Intermediary Suppliers who are connected.

Many commentators have also voiced a concern that subcontractors will lose the cash flow advantage gained from being paid before having to account for VAT on a VAT return, as they have now passed this responsibility onto the supplier of the construction service.

From an accounting and business perspective, the issues are perhaps more practical in terms of changing accounting systems so that sub-contractors do not account for VAT, and the contractor’s systems account for the reverse charge.

With the impact of the end of Brexit and the economic challenges brought on by the coronavirus pandemic, it would be wise for businesses in the construction sector to start planning now, to ensure that they will be ready when the new rules come into force.

Our expert team is on hand to ensure that your business is prepared for the new VAT reverse charge. For help and advice, contact our expert team today.

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Posted in Blog, SMEs, Tax, VAT.