Following initial delays in its implementation, the new VAT reverse charge regime is finally coming into force from 1 March 2021 and will impact employers, developers, contractors, consultants and sub-contractors.
All construction supplies made after 1 March 2021 will likely be subject to the new VAT reverse charge even if it relates to an existing project under an agreement dated prior to that date.
The new rules are broad in scope and quite complex, so it’s important to check whether these apply to you. Generally speaking however, they will apply to developers, employers and main contractors (i.e. a recipient of services) in respect of supplies from their sub-contractors, such that the recipient of construction services will now be required to pay any VAT on the supplies directly to HMRC, rather than to the relevant contractor / sub-contractor / consultant.
Note that the regime will not apply to an ‘end user’, an ‘intermediary supplier’, or to those who are not required to report under the CIS regime.
What should you do next?
It is vitally important that construction businesses revisit all their agreements, their internal invoicing and accounting processes, including CIS and VAT registrations, to make sure they are compliant with the new rules otherwise you could end up paying VAT twice and having to recover it from HMRC.
We encourage you to visit our dedicated page on Preparing for the new VAT reverse charge for more in-depth articles including a detailed overview of the list of construction services affected by the new VAT rules and the various exception and exclusions.