VAT Reverse Charge for Building and Construction Services.
Are you ready?
From 1st March 2021 a VAT reverse charge will apply to UK businesses whose supply is of ‘construction services’ – (connected to the same meaning under the CIS). Meaning businesses who operate in the construction and building sectors will have to change the way in which they account for VAT.
The proposed measures are being bought into practice as an anti-VAT fraud measure to prevent missing trader fraud.
A VAT registered business receiving supplies of ‘construction services’ from another VAT registered business will have to account for the reverse charge VAT on its own VAT return subject to the normal rules. Where the reverse charge applies, businesses (typically main contractors or developers), will need to ensure that they do not pay over the VAT element to the subcontractor.
The reverse charge will apply throughout the sub-contract supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of construction services (the end-user).
The principle result for the subcontractor being, the cost to administer, the loss of VAT and a significant reduction in cash flow for those who rely on the output VAT injection for short term funding.
If your business engages with a payroll intermediary or an payroll outsourcer, the reverse charge will not apply to their services therefore, VAT will be applied to their invoices. Consequently increasing the cash flow shortfall.
How Can Subcontractors Prepare?
The key to getting through the initial period is to be aware and well-prepared. For example, if you are currently completing quarterly VAT returns, then applying to HMRC to complete monthly VAT returns will reduce cashflow exposure by two-thirds since the gap will only be up to 4 weeks, rather than 13. We would advise speaking with your accountant as soon as possible or, we would be happy to arrange a consultation with our accountancy partner.
For more information or to discuss your options, please call us on Tel: 0845 077 7072 or Email: support@onsitecontractservices.co.uk