HMRC have announced that the new rules for accounting for VAT are planned to be implemented from 1st March 2021. The aim of the new rules is to reduce the amount of VAT fraud.
It will not change the VAT liability but simply change the way VAT is accounted for. The recipient of the relevant building and construction services, not the supplier, will account for the VAT. It will apply to VAT registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS).
A sub-contractor provides services to a customer or another contractor who then makes an onward supply of the same services to another customer. All parties are VAT registered, when the customer confirms they are the end of the chain normal VAT applies.
So, what does a subcontractor need to do?
When invoicing a main contractor or end customer, you have the option to either charge VAT as normal or use the reverse charge. Your invoice must state that the reverse VAT rules apply then your customer (or contractor) will need to include that amount on the VAT return.
What about main contractors?
If you are in receipt of an invoice for a sub-contractor which has a VAT reverse charge applied, you should record it as a normal expense and include input VAT on your return. You will also need to account for the reverse charge VAT.
A mix of both
You may work as a sub-contractor on one job and then as the main contractor on another. In this instance, you just apply the VAT circumstances for each project that you are working on.
If you need any help or support with the new reverse VAT charge, please get in touch with the Clear Vision Financial Management team, call us on 01794 330025 or email us.