New VAT rules for building contractors and sub-contractors will come into effect from 1 March 2021. The new rules were originally expected to come into force from 1 October 2019 before an initial 12 month delay was announced. The start date was then delayed for a further 5 months until 1 March 2021 due to the impact of the coronavirus pandemic.
What is changing?
The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.
From 1 March 2021, sub-contractors will no longer add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. When this deemed output VAT is accounted for, the trader can then deduct the deemed VAT as input tax. Thus, overall, there is no additional cash cost for the contractor just admin hassle. Most accounting software can be adapted to account for the book entries required. This is known as the Domestic Reverse Charge.
New HMRC guidance
The guidance states that, for invoices issued for specified supplies that become liable to the reverse charge, the VAT treatment for invoices with a tax point:
- before 1 March 2021 – the normal VAT rules will apply and you should charge VAT at the appropriate rate on your supplies
- on or after 1 March 2021 – the domestic reverse charge will apply.
If you need help with VAT and the CIS scheme, call MJB Avanti (08000) 388 799