Changes to the VAT Reverse Charge for the Construction Industry Scheme
VAT Reverse Charge - Under the new rules
- VAT registered subcontractors who provide a service and any related goods to a VAT-registered contractor who is CIS-registered no longer need to account for the VAT.
- Instead, it is the contractor or developer who will account for the VAT as an input tax - as if they made the supply to themselves.
- If the customer is a private individual the reverse charge does not apply, and VAT should be charged to the individual as normal.
From 1 March 2021
- Subcontractors should be notified by the contractor where the reverse charge applies.
- Include all the information that is normally required on a VAT invoice, except no VAT will be charged.
- The invoice should state that the reverse charge applies and the amount of VAT the customer is required to account for under the reverse charge.
- The reverse charge will apply to all jobs completed on or after 1 March 2021, but it may also apply to work that was commenced before this date but completed afterwards.
Switching to the new VAT regime
- Deciding when the switch to the new VAT regime takes place, depends on the tax point i.e. the date of issue of the VAT invoice or the receipt of payment.
- Where the tax point is on or after 1 March 2021 then the reverse charge should be applied even for work commenced before this date. Otherwise, the existing VAT rules apply.
Impact on cashflow
- The changes might provide a cashflow boost to contractors because the VAT previously paid when paying a subcontractor is ‘netted off’ in your VAT return instead, rather than being physically paid.
- Conversely subcontractors may see a negative impact on cashflow because the VAT previously paid with their invoice and held before paying the monthly or quarterly bill to HMRC will no longer be received.
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