From April 2024, all landlords with income over £10,000 per year will be required to comply with Making Tax Digital (MTD). This will be extended to…
Changes to the way customers account for VAT on certain building and construction services will be introduced from 1 March 2021.
In a nutshell, the changes mean that a UK VAT registered customer in receipt of standard or reduced rate services that are normally reported through the construction industry scheme (CIS) must account for VAT as a domestic reverse charge rather than the supplier account for VAT on its supply.
The domestic reverse charge is a mechanism whereby the customer accounts for VAT as though it made the supply and then is able to deduct the VAT as input tax – this will normally result in no net tax payable to HMRC by the customer.
The changes were first announced in the Autumn Budget 2017 and are in response to organised crime groups artificially extending supply chains within the construction industry sector with the intention of failing to pay VAT. It is thought that the reverse charge removes the scope to evade any VAT owing to HMRC.
Supplies to an end user will not be caught by the changes and VAT should be charged in the normal way. End users will usually be those customers who use the building or construction services for themselves rather than sell the services on as part of their business. Other excluded services that the reverse charge will not apply to are:
- Zero rated supplies of construction services;
- Supplies where the recipient makes onward supplies of those construction services to a connected company; or
- Where the supplier and recipient are landlord and tenant or vice versa.
For the first six months following the introduction of the new reverse charge, HMRC have said they will apply a ‘light touch’ when in dealing with related errors.
Contractors working to main contractors will need to identify when they should not charge VAT. The changes could adversely affect the cash flow of those suppliers that reply on VAT collected in the short term.
We have produced our 10 FAQs that explains some of the fundamental changes. The FAQs also include links for further guidance on the services affected, compliance issues and what you may need to consider with on-going and new contracts. Click here to view.
With such big changes there are bound to be questions; our VAT and indirect tax teams, the largest in the South West, can answer those queries. In addition, we can also advise on all aspects of land, property and construction VAT, VAT planning relating to property development and structuring as well as SDLT advisory and planning in respect of land and property transactions.
Contact [email protected] for more information.