Why have HMRC made these changes?
HMRC believe £100m of revenue is lost each year as a result of missing-trader fraud, where construction businesses charge VAT to their customers and then disappear before paying it over to HMRC.
In order to combat this, new reverse charge rules were introduced from 1 March 2021, which have a widespread impact on the construction sector.
How do the new rules work?
Under the new rules, businesses supplying construction services must not charge VAT where their customer:
- Is registered for VAT
and - Will use the services to make an onward supply of construction services.
Instead of the supplier charging VAT, the recipient of the services must self-account for VAT on the services received. This is known as reverse charge accounting.
What services are included?
The new rules apply to construction services supplied on or after 1 March 2021, regardless of value, even if construction is not the main business activity.
The definition of construction services is wide and mirrors the definitions used for the Construction Industry Scheme (CIS). It also includes goods, such as building materials, but only when supplied as a single package with construction services.
There are some exclusions, such as the installation of seating, blinds, shutters and security systems. Professional services of architects, surveyors and consultants are also excluded. However, where excluded services are supplied as a package with other services which are within the new rules, the whole package will be subject to the reverse charge.
You can view the draft legislation by visiting Gov.uk
Is my software ready?
Yes it is if you have Sage 50 Accounts v26 and above. This version is fully up to date to deal with the 2021 changes including new tax codes available to use - one less thing to worry about. There are also some new letter templates available for you communicate these changes with companies you trade with.
Find out more about the changes in Sage 50 Accounts and the new tax codes - Read more >
Join a webinar
Join our free webinar covering CIS Domestic Reverse Charge. We cover what the legislation changes are, why they were introduced, and how they impact business operating in the construction industry scheme. We also show you how to implement these changes in Sage 50 Accounts, including how to process customer and supplier invoices and the effects of Domestic Reverse Charge on your VAT returns.
Join now >
Find out more
To read more about the CIS reverse charge changes, please see our CIS Reverse Charge - Common questions.
Free Training
Free CIS Reverse Charge VAT Training available at Sage University now >
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