You may have heard that there are significant changes coming into effect for VAT in the construction sector from 1 March 2021 (originally planned for 1 October 2019 but deferred on several occasions).
Very simply, under certain circumstances the company undertaking the work and raising the sales invoice will no longer charge VAT and pay it across to H M Revenue & Customs. Instead the customer who is being charged for the work will instead have to account for the work and pay it to HMRC.
The CIS VAT reverse charge applies to sales of construction work when all the following are met:
- The supply for VAT consists of construction services and materials.
- Made at the standard or reduced-rate of VAT.
- Between a UK VAT registered supplier and UK VAT registered customer.
- Supplier and customer are registered for CIS.
- The customer intends to make an ongoing supply of construction services to another party.
- The supplier and customer are not connected.
The CIS reverse charge does not apply to any of the following supplies:
- Supplies of VAT exempt building and construction services.
- Supplies that are not covered by the CIS, unless linked to such a supply.
- Supplies of staff or workers.
The CIS reverse charge does not apply to taxable supplies made to the following customers:
- A non-VAT registered customer.
- ‘End Users’ i.e. a VAT registered customer who is not intending to make further on-going supplies of construction.
- Intermediary customers who are connected, e.g. a landlord and his tenant or two companies in the same group, where the intermediary suppliers buy construction services and re-supply them to the connected or linked end user without making material alterations to the supplies.
Not only will you need to make sure you are aware of how to account for VAT on your sales, you will also need to make sure that any subcontractors working for you are also invoicing you correctly.
Full details can be found here: www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services
Flowcharts for both suppliers and buyers on whether the new rules apply can also be found here: