What do I need to know about the construction industry VAT reverse charge?

As of the 1st March 2021 the domestic VAT reverse charge must be implemented for the majority of supplies to building and construction services. HMRC have introduced this initiative to combat tax fraud. This was originally supposed to be introduced in October of this year, but due to the COVID-19 pandemic the government pushed this back.

Businesses will need to investigate whether their cash flow will be impacted by these changes. Some businesses may rely on the VAT in the bank before paying their VAT to HMRC but now they will not be in receipt of it to be able to do this.

The VAT reverse charge will impact businesses who supply or receive specific goods or services, and the end user will now be accountable for the VAT.

The VAT reverse charge must be used when;

  • Constructing, altering, extending, demolishing or dismantling structures
  • Painting & Decorating internally or externally
  • Installing heating, lighting, air conditioning or utilities

The VAT reverse charge DOES NOT need to be used for;

  • Drilling/extracting natural gas
  • Extracting Minerals
  • Manufacturing of machinery/equipment
  • Manufacturing of heating/lighting/air conditioning
  • Installation of seating, blinds, shutters and security systems

For a full breakdown of when the reverse charge needs to be used, or doesn’t need to be used please visit the HMRC website

CIS (Construction Industry Scheme) is HMRCs method to make sure businesses in the construction industry pay the correct amount of tax.

If you use subcontractors, you will need to make sure you are compliant.

You will need to:

  • Verify subcontractors online with HMRC.
  • Apply the correct deduction rates to payments.
  • Submit HMRC CIS Returns online.
  • If you make mistakes you will need to correct and resubmit 

You will need to ensure that your accounting software is compatible to deal with the reverse charge. Sage 50 cloud accounts is already prepared for the reverse charge, so this is great news for existing users.  To ensure you are compliant and to save you time and money, why not use the Sage 50 CIS module to help you with the above steps?

How Sage 50 Cloud Accounts and the CIS module can help you:

  • Guide you through the above steps to ensure you are compliant when subcontracting
  • Project costing – allows you to see your profit in ‘real time’ which then helps you to stay within your budget
  • Comprehensive stock control – controls your cashflow by ensuring you only order stock when needed
  • Quotations, Invoices and Orders can be raised and linked to stock, customers, suppliers and projects so nothing needs to be actioned manually
  • Reporting – to help you keep on track

If you would like to discuss your Sage 50 Software options please get in touch

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