Does your business operate CIS as a contractor or sub-contractor?

If so, you need to know that there are big VAT changes due to now come into force on 1 March 2021.

This brief explains that the introduction of the domestic reverse charge for construction services will be delayed for a period of 5 months from 1 October 2020 until 1 March 2021 due to the impact of the coronavirus pandemic on the construction sector.

There will also be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.

HMRC brief 7 2020 domestic reverse charge vat for construction services delay in implementation

You can find out more about the scope of the reverse charge and how it will operate here:

Domestic reverse VAT charge for building and construction services

The key aspects are:

  • subcontractors will no longer receive the VAT on sales and so this will mean a change to how they manage their cash flow

  • it will apply to standard and reduced-rated supplies of specified building and construction services made to VAT registered business, who in turn also make onward supplies of those building and construction services

  • the scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme, but does not include supplies of staff or workers

  • if your customer is not VAT-registered or subject to CIS, this will not affect you or your sales

  • the effect of this change means that it is the customer (contractor) receiving the supply of specified construction services who must account for the VAT due rather than the supplier (sub-contractor). In turn, the customer deducts the VAT due on the supply as an input, subject to the normal rules, meaning no net tax is payable to HMRC in most cases

  • businesses or groups of associated businesses that make supplies directly to their end customer, such as landlords, tenants, property developers or private individuals, are excluded from the scope of this reverse charge