Construction industry VAT reverse charge to come into effect on 01 March, Government confirms

The delayed Construction Industry Scheme (CIS) VAT reverse charge will come into effect on 01 March 2021, it has been confirmed.

The anti-fraud measure had been due to come into effect on 01 October 2019 but was postponed twice due to Brexit and the coronavirus pandemic.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), the scheme represents a “major change” to the way that VAT is collected in the construction industry.

So, what is the CIS VAT reverse charge and how will it work?

The VAT reverse charge was first proposed to stamp out “missing trader” fraud in the construction sector.

Under the scheme, VAT-registered subcontractors carrying out qualifying construction work will not charge the main contractor VAT for their services. Instead, the primary contractor will collect and pay the VAT to HM Revenue & Customs (HMRC) directly.

What does the charge apply to?

The charge applies to standard and reduced-rate VAT services for individuals or businesses registered for VAT in the UK and report with the CIS.

This means landlords, property developers and tenants are exempt.

What you need to do

The reverse charge will come into effect from 01 March 2021. From that date, check when you must use the reverse charge on your sales, purchases or both.

You should also ensure that your accounting systems, software and bookkeeping staff are up to date and can deal with the reverse charge. It will also be prudent to assess how the change will impact your cash flow position.

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