VAT Reverse Charge For Construction And Building Services
This was originally due to be introduced from 1 October 2020 and will now come in on 1 March 2021.
Every VAT registered construction business will have received a letter in September 2020, advising them to check if they may be liable for the reverse charge.
If you are liable, you should start to prepare now. Further information on the scope of the reverse charge and how it will operate can be found in this
The key aspects are:
- It will apply to standard and reduced-rate supplies of building and construction services made to VAT registered businesses, who in turn also make onward supplies of those building and construction services
- The contractor will be responsible for paying the output VAT due rather than the sub-contractor but can continue to reclaim this amount as input tax
- The scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme but does not include supplies of staff or workers for use by the customer
- The legislation introduces the concept of “end-users” and “intermediary suppliers”. This covers businesses or groups of associated businesses that do not make supplies of building and construction services to third parties and as such are excluded from the scope of the reverse charge if they receive such supplies. Examples include landlords, tenants and property developers.
HMRC has begun running webinars for businesses, for which you can register here:
More information on the Construction Industry Scheme can be found here:
HMRC Tightens CIS Rules
From April 2021 The Construction Industry Scheme (CIS) will include new penalties and safeguards against errors.
HMRC will have the power to amend any CIS deductions (set-offs) you claim against the tax payable through your real-time information (RTI) employer submissions. It will make an amendment if you fail to provide evidence to back up your entitlement to a set-off when asked by HMRC.
If HMRC makes an amendment to correct an error, it will have the power to refuse subsequent claims for set-offs in the same tax year. That means you’ll have to wait until after the end of the tax year before you can claim the set-off against your direct tax (income or corporation tax) liability.
This change strengthens the rule regarding the calculation of CIS deductions. In arriving at the amount of pay to which the 20% or 30% deduction applies you can only take into account the cost of materials purchased by the subcontractor which they used solely for the contract for which you’re making the payment.
The new rules widen the scope of penalties in respect of applications for gross payment status. HMRC will be able to charge a variable penalty where a company or individual provides, or encourages someone else to provide, incorrect information or documents to HMRC to help the application to be paid without CIS deductions.