The Construction Industry Scheme (CIS) VAT Reverse Charge applies to construction services from 1 October 2020 – adding further pressure to construction companies already getting to grips with IR35 and Brexit.
On 1 October 2020, the VAT Reverse Charge will come into force in the UK, changing the way VAT is managed and paid throughout the supply chain.
Put simply, the new charge makes the customer who receives supplies of construction services responsible for the VAT due on these supplies, rather than the supplier.
It applies exclusively to transactions between VAT-registered contractors and subcontractors who are registered for the Construction Industry Scheme (CIS).
In 2018, the government described the VAT Reverse Charge is “an anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer”.
The start date was due to be 1 October 2019, but at the eleventh hour, in September 2019, HMRC announced that implementation would be delayed by a year to accommodate Brexit (at that point, the UK was due to leave the EU on 31 October 2019) and the fact that so few businesses were ready for the change.
It is important for construction companies that stand to be affected by the new charge to prepare for this during the coming months, given that the change will apply to all contracts in operation on that date, not just those created thereafter.
An employer will continue to pay VAT but contractors, if deemed to be the final recipient of services in the supply chain, must retain VAT charged by its subcontractors and pay it to HMRC, together with VAT charged to the developer for its own services.
This may mean appointments need to be reviewed and new procedures adopted to manage the changes.
More information on the Reverse Charge is available on the government website here.
For more information on the CIS and IR35 (the other significant tax change likely to impact construction this year) and how Brexit stands to affect the construction sector, please see our previous blog posts on these topics.
Put simply, the new charge makes the customer who receives supplies of construction services responsible for the VAT due on these supplies, rather than the supplier.
It applies exclusively to transactions between VAT-registered contractors and subcontractors who are registered for the Construction Industry Scheme (CIS).
In 2018, the government described the VAT Reverse Charge is “an anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer”.
The start date was due to be 1 October 2019, but at the eleventh hour, in September 2019, HMRC announced that implementation would be delayed by a year to accommodate Brexit (at that point, the UK was due to leave the EU on 31 October 2019) and the fact that so few businesses were ready for the change.
It is important for construction companies that stand to be affected by the new charge to prepare for this during the coming months, given that the change will apply to all contracts in operation on that date, not just those created thereafter.
An employer will continue to pay VAT but contractors, if deemed to be the final recipient of services in the supply chain, must retain VAT charged by its subcontractors and pay it to HMRC, together with VAT charged to the developer for its own services.
This may mean appointments need to be reviewed and new procedures adopted to manage the changes.
More information on the Reverse Charge is available on the government website here.
For more information on the CIS and IR35 (the other significant tax change likely to impact construction this year) and how Brexit stands to affect the construction sector, please see our previous blog posts on these topics.