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Tel: 01229 826262


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Tel: 01228 739019

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New VAT rules for Construction Contractors

New VAT Rules for Construction Contractors

From 1 March 2021 there will be a significant change to how contractors in the construction industry supply chain account for VAT. The changes will apply to contractors using the CIS tax scheme and that are part of a chain of supplies. Therefore the provisions will only apply where the customer of one contractor is another contractor. A domestic reverse charge will mean that instead of accounting for VAT on their services CIS contractors will simply put a statement on the invoice advising the end contractor that they must account for VAT using the reverse charge.

It is vital that any businesses who think they will be affected by these changes act now and ensure they understand the impact this will have. A review of each and every customer, supplier, and contract will be necessary to determine the correct VAT treatment. It will also be necessary to review accounting software to ensure it can deal with the changes, and train staff to recognise the situations affected. The financial impact of getting this treatment incorrect in the long term would be significant. HMRC will be pursuing non-compliance with the new legislation and will impose penalties.

Subcontractors are likely to feel a cashflow impact of the changes if they currently rely on the VAT element of their invoice to fund working capital during in the time between an invoice being paid and the VAT being due to be paid to HMRC.

There are particularly complex rules involved with regard to mixed supplies (such as the supply and fit of domestic appliances), when an end user certificate should be issued, and supplies to connected parties. If you have any queries about these new rules you will have the opportunity to ask any questions at the workshop. Your accountant will also be able to provide further advice.

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