The construction industry has become used to delays in the big VAT reverse charge plans as it moved from October 2019 to October 2020. So there won’t be too much surprise perhaps that the changes have been delayed once again to 1 March 2021, due to COVID-19.
At least the delays have given small building firms the chance to get up to speed with the new rules which were launched to tackle fraud in the sector. The domestic reverse charge means that from March 2021, the customer rather than the supplier will be liable to account for the VAT on purchases of certain building services. For each transaction made, the VAT is to be stated on the invoice as a reverse charge, so it is the recipient of the supplies or services that registers the VAT.
It is said that the changes will affect around 120,000 businesses and according to the Federation of Master Builders, over two-thirds of construction SMEs were not aware of the approaching reverse charge.
The VAT reverse charge applies to supplies of services such as:
- External or internal painting and decorating
- Installation of heating, lighting, air-conditioning, power and water supply, drainage, ventilation, sanitation and fire protection
- Construction, repair, extension, alteration or demolition whether permanent or not
The reverse charge doesn’t apply to certain services such as surveyors or architects consultation, hire of machinery (without an operator) and its delivery to site and installation of security systems. And unlike other types of reverse charge, the value of reverse charge services will not count towards the VAT registration threshold.
Are you prepared for this significant change?
It is important for building companies to establish which of the supplies they make and receive will be subject to the reverse charge and which contractors are VAT and Construction Industry Scheme (CIS) registered. They should also request a notification from their customers that they are an end user.
There may be adjustments that can be made to accounting software to better manage the change and remain compliant.
Another key concern surrounding the VAT reverse charge is the impact it will have on a company’s cash flow. If a smaller construction business is reliant on VAT income moving up the supply chain, they may suffer financially as a result of the reverse charge.
If you are worried about the upcoming VAT changes for your business, get in touch with the construction experts at CRM who have been getting to grips with these changes for months and can guide you through the details. Give CRM a call on 01865 379272.