You may have already heard about the new ‘VAT reverse charge for building and construction services’ rules coming into effect on 1st March 2021, you may already know all about it or you might have arrived here to find out more!
The new rules are summarised below, which will hopefully help you understand your new responsibilities.
The main point to remember is that the rules apply to works which fall under the scope of CIS with both the contractor and subcontractor being VAT registered – if you don’t fall within the scope of CIS then they do not apply to you!
In summary the new rules mean that any payments made to subcontractors or payments received from contractors who fall within the scope of CIS will not have VAT on them, even if the parties involved are VAT registered. Instead, the invoice should clearly state that it is a reverse charge invoice.
The VAT is then calculated at the point of payment and included within the next VAT return.
Works which fall outside of the scope of CIS should be processed and paid with VAT calculated as normal.
Working for a Main Contractor
If you are a subcontractor, you likely invoice a main contractor for works which fall under the scope of CIS. In this case, from 1st March your invoice to the main contractor should not show any VAT. instead the invoice should clearly state that it is a reverse charge invoice. The Main Contractor will then account for the VAT on their VAT return.
Paying Sub Contractors
This rule needs to be noted when you are paying Sub Contractors for works which fall under the scope of CIS. A VAT registered subcontractor will need to invoice you for services without VAT and clearly state that this is a reverse charge invoice. It is then your responsibility to account for the VAT element of this invoice on your next VAT return.
There are a couple of exceptions to the above new rules which include:
End Users – if you are invoicing an end user, including those who receive building or contraction services within the scope of CIS but do not supply those services on and use the building themselves, the new rules do not apply. This would also be the case if you use subcontractors for a project on your own business property (as you are then classed as the end user).
Zero rated contracts – if you are working on a zero rated contract the new rules do not apply as there is no VAT to calculate.
More info can be found in this article: https://www.rossmartin.co.uk/vat/vat/4137-construction-industry-vat-reverse-charge-at-a-glance
As always with changes like this, we’re here to help you so please don’t hesitate to get in touch!