New VAT rules were originally due to be introduced for construction services with effect from 1 October 2019, although this commencement date was then postponed for 12 months until 1 October 2020. However, due to the coronavirus pandemic the start date was again postponed and is now due to come into effect on 1 March 2021.
With effect from 1 March 2021, the rules will change between VAT-registered construction businesses. Under the new rules responsibility for the charging VAT on a transaction and paying into over to HM Revenue & Customs (‘HMRC’) will pass up the supply chain, from the supplier to the customer. This represents a major change in the way VAT is collected in the industry and this week’s Muras Matters acts as a reminder of the new rules.
Currently a contractor will charge VAT to their customer, collect the VAT from the customer and then record it in Box 1 on their VAT return.
Under the new rules, from 1 March 2021 when the reverse charge applies to a transaction, the supplier will not charge VAT, and will not receive a VAT payment, and therefore will not pay VAT to HMRC on that particular transaction. Instead it will be the customer who will pay the VAT due to HMRC as part of their normal VAT return. The customer will then be eligible to recover the VAT under the normal input tax and partial exemption rules
The effect overall for the customer will be often be nil, since the output VAT declared in Box 1 will be the same as the input tax they enter in Box 4. This is referred to as the “reverse charge” procedure.
Further information can be found in HMRC’s comprehensive guidance on the new rules, together with two helpful flowcharts – one for suppliers and one for customers (see section 25 of the technical guidance at https://www.gov.uk/guidance/vat-reverse-charge-technical-guide#flowcharts), or if you would like to know how the changes will impact you specifically then please contact us for further details.
Our Current working arrangement – We remain ‘Open for business’
Our office premises are currently closed, however our staff are continuing to collect post, and are working from home as much as possible. They can still be contacted in the usual way either via email or by calling the office number where reception will divert your call to the appropriate staff member.
This is very much an overview and the changes are significant, therefore if you have any concerns or would like further information in regard to these VAT changes described above, please speak to your usual contact at the firm.
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