Reverse Charge VAT and Cash Flow
The VAT domestic reverse charge (DRC), which drastically alters the way VAT is accounted for in construction, will be applied as of 01 March 2021 to tackle fraud by stopping VAT changing hands throughout most of the construction supply chain. It is reported that VAT Fraud, within construction alone, currently costs the Treasury £100m in lost tax revenues each year.
In order to be prepared for these changes you may need to adapt your accounting software and processes plus increase VAT compliance to ensure that supplies and purchases are correctly processed. You should also be aware of potential cash flow difficulties as the changes are enforced, due to losing the buffer that being paid 20% VAT provides and consider moving from quarterly to monthly VAT returns. Also, you need to ensure your supply chain is complying with the DRC. If your suppliers are providing you with ‘construction services’, then you should not be charged VAT.
The following criteria can help you understand if the VAT Reverse Charge
will apply to your business:
Are you VAT registered?
Do you supply relevant construction services?
Are those services subject to CIS reporting?
Are those services subject to VAT?
Is your client VAT registered?
Your client is not an end-user or intermediary connected with the end user.
If you are impacted by the upcoming changes or are unsure of the potential implications to your business, contact your advisors or our team at Stonebridge for guidance.
We at Stonebridge are affected by this legislation change as we provide relevant construction services, therefore, will not be charging you VAT on invoices from 01 March 2020.