New VAT rules for the construction sector start on 1st March 2021

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New VAT rules are finally due to come into effect this March which will impact on accounting for VAT for transactions in the construction sector. These new rules, which were originally scheduled to start back in October 2019, have already been delayed twice as there was a lack of awareness of the changes in the industry.

Who is affected and what is changing? 

The new “reverse charge” system of VAT accounting will affect sub- contractors supplying their services to main contractors in the construction sector.

Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the new reverse charge system, the sub-contractor will not show VAT on their invoice to the main contractor and will not account for output VAT.

This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors, some of whom were allegedly not paying over the VAT charged to HMRC.

The new reverse charge will apply to a wide range of services in the building trade, primarily those activities covered by the construction industry (CIS) payment rules. Note that normal VAT invoices will continue to be issued to domestic customers.

Should you be switching schemes to become more tax efficient? We can help..

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system when it starts. If you are a sub-contractor using the VAT flat rate scheme, it may be beneficial to leave that scheme as you may be entitled to a VAT refund on your expenses from 1st March 2021. Our team of tax experts have the knowlege to ensure you are maximising your tax efficency. Contact our Director, Nick Bonnello, today on 0115 964 8860 or email him directly at nickb@rwbca.co.uk to find out how we can help you prosper.

The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.  

Tags: Financial planning Taxation Tax advice Tax planning Benefits VAT Tax HMRC Builders Sub-contractors Contractor Construction

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