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VAT Changes For Construction Industry

If you deal with VAT through the construction industry, read on ahead.
If you don’t, then you’re still welcome to read all about it – or you could put the kettle on instead?


The new VAT Reverse Charge System

The new VAT Reverse Charge System for the UK Construction Industry comes into force on the 1st March 2021.
This new system will affect those transactions that are:

  • Between a UK VAT registered supplier and UK VAT registered company
  • Both the supplier and customer are registered for CIS
  • The customer intends to make an ongoing supply of construction services to another party.
  • Are standard or reduced rate VAT supplies.

We would particularly see these new rules coming into play when there is a transaction between a subcontractor and a contractor who is not the end user of the services. The new system effectively moves the VAT charge down the supply chain.

The CIS Subcontractor will no longer have to account for output VAT, the sales invoices will need to state that the customer is responsible for the VAT and show what rate should be applied.

The CIS Contractor will be responsible for reporting both the input and output VAT on the bill using the Reverse Charge Mechanism on their VAT Returns.


Impact On Your Business

As a subcontractor you may experience a short-term cash flow deficit as you will no longer be receiving the VAT element of the sales transaction from your customer.

As a contractor the Reverse Charge will have a positive effect on short term cash flow as you are no longer paying the VAT element of the subcontractor costs.


Domestic Reverse Charge and XERO

XERO users will be pleased to learn that it handles Reverse Domestic Charge automatically ensuring the right information is shown on both the CIS and sales invoices as well as the VAT return for CIS contractors.


VAT can be a complex and daunting challenge to take on so if you need a hand, feel free to get in touch.
We’re always here to help.


MATCH Accounting Limited