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VAT reverse charge: what businesses need to know ahead of 1 March 2021

January 18, 2021

To avoid any penalties for erroneous VAT charges, be that by mistake or not, it is essential to prepare for the delayed VAT reverse charge rules to come into effect.

From 1 March 2021, the new guidance states that it will be the construction service suppliers’ responsibility to account for VAT. Currently, the subcontractors charge this. 

This change is due to HM Revenue and Customs (HMRC) believing many sub-contractors neglect paying the VAT they collect from their customers.

Are there any businesses that will not be affected by the change?

Numerous businesses will not feel the impact of this VAT change, notably so ‘End Users’.

These users receive construction supplies but do not make an onward supply of construction services themselves. Therefore, contractors will need to the charge ‘End Users’ the current way for VAT, so long as ‘End Users’ declare their status so contractors can determine this for the scheme. 

Where will the reverse charge not apply?

The reverse charge does not need applying on supplied services to the ‘End User’, plus if the recipient makes onward supplies of those construction services to a connecting company. 

Additionally, if the supplier and recipient are landlord and tenant (either way) and if the supplies are zero-rated, there is no charge.

Due to the unprecedented challenges businesses have already faced in 2020, Knights Lowe advises companies in the construction sector to ensure they are ready for when the new VAT reverse charge rules begin, on 1 March 2021.

Businesses should guarantee their accounting systems and software are up-to-date to deal with the VAT reverse charge, examine how the change might alter their cash flow, and ensure all VAT responsible employees are familiar.

Knights Lowe is here to help your businesses prepare. Contact our experts today for more information or guidance. 

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