After a number of postponements, it is here. The new Reverse Charge for Construction Services will take effect from 1 March 2021. If you have not already put processes in place, it is not too late to do so, and in the main the HMRC guidance is clear and well written https://www.gov.uk/guidance/vat-reverse-charge-technical-guide
The aim is to ‘shift’ the responsibility to account for VAT away from subcontractors and onto the contractor (in a similar way in which CIS shifts the responsibility of income tax from subbie to contractor)
- It only affects construction services – not the supply only of materials or non-building services
- Both parties need to be VAT & CIS Registered – if you are not VAT registered there is no VAT to shift, and if your customer is not VAT or CIS registered there is no-one to shift the VAT onto.
Yes, there will be an admin burden, with specific treatment to your VAT Return and the way in which you raise your invoices
- Determine how you will Record / Implement this per project (or site)
- Determine how you will Record / Implement this per Supplier or Customer – perhaps an easy to complete form containing proof they are VAT registered & CIS registered? Is this a good time to amend your CIS process? There could well be an overlap
“HMRC are applying a light touch, so there’s nothing to worry about”.
No! HMRC will only apply a ‘light touch’ when a genuine error has occurred or there are teething problems within your process – meaning you need to demonstrate you have one in the first place.
It is not an excuse for laziness, as there may well be strict financial ramifications for non-compliance; either a loss of Input VAT or having to account for Output Tax – irrespective as to whether it was collected from your customer or not
”My Accountant deals with my VAT & CIS affairs; they will resolve it”
No! You will need to decide when and how to apply the reverse charge at the time you receive/make payments and when you issue invoices.
It cannot be a retrospective exercise, however regular or frequent that may be.
”I don’t think it affects me”
You need to know exactly, and now!
- Are you looking ‘down’ the Supply Chain? In which case you are likely to be accounting for your suppliers VAT
- Are you looking ‘up’ the Supply Chain? In which case you may be ‘shifting’ your VAT onto your customer
An easy ‘escape’!
If you fall into one of these categories you may have escaped the whole thing – but check regularly and – as always with VAT & Tax – ensure you can prove it.
- You are not VAT registered – No VAT to bother with
- You are not CIS Registered (or your Customer is not) – Both parties need to be CIS registered for the reverse charge to apply
- You are not supplying construction services – It could be materials only, or manufacturing off-site or you are a Professional Service
- You are supplying Construction Services, but on a domestic new build – These are in the main zero rated, so again no VAT to ‘shift’ onto your customer. Be careful of non-building materials and FF&E (appliances, carpets etc.) that may have different treatment
- You are the ‘end-user’ – A good rule of thumb would be that you own (or lease) the property in question – it does not matter if you are a Developer who rents or sells; what is important is that you are not supplying construction services to anyone else. You are effectively at the top, or end of, the construction chain.
Not you? In that case I’m afraid you need to read the HMRC Guidance and decide how the Reverse Charge affects you and what you must do to comply.
BBV clients have access to a bespoke set of Flowcharts and Guides that aim to simplify the process and iron-out errors that HMRC can action or penalise. Clients also have access to a Helpline Service where a Senior Consultant will answer any specific reverse charge (or VAT) query.
Helpline membership is as little as £40 (plus VAT) per month, renewable annually.