As of 1 March 2021, the VAT reverse charge rules for the construction industry have been in force, bringing about significant changes for sub-contractors, contractors and developers.
The new reverse charge rules mean that it is now the responsibility of the suppliers of construction services to account for the VAT that would have previously been charged by their sub-contractors.
The reverse charge was designed to combat fraud in the sector by preventing sub-contractors from failing to pay the VAT they collect from their customers.
Many businesses will not be impacted by the changes. Most notably, the reverse charge will not need to be made by ‘End Users’.
Instead, contractors making supplies to ‘End Users’ will charge VAT using traditional methods. ‘End Users’ are customers that receive the supplies of construction but do not make an onward supply of construction services themselves (developers may be an example).
However, there are concerns from a VAT perspective on the reverse charge, for example, how a contractor can determine that its customer is an ‘End User’ for the purposes of the scheme and the responsibility of ‘End Users’ to declare their status.
In addition, the rules concerning the VAT liability of construction services are complex and must now be determined for the entire supply chain of contractors by the contractor providing the services to the eventual ‘End User’.
This has led to concerns that some sub-contractors and contractors will lose the cash flow advantage gained from being paid before having to account for VAT on a VAT return.
From an accounting and business perspective, the issues are perhaps more practical in terms of changing accounting systems so that sub-contractors do not account for VAT, and the contractor’s systems account for the reverse charge.
With the impact of the end of Brexit and the economic challenges brought on by the coronavirus pandemic, businesses must ensure that they’re up to date with the new VAT Reverse Charge rules to avoid any unnecessary stress.
Our expert team is on hand to ensure that your business is compliant with the new VAT Reverse Charge rules for the construction sector. For help and advice, please speak to our team today.