10th June 2020
You may recall that this scheme was originally going to be introduced by HMRC on 1 October 2019. However, to avoid the changes coinciding with Brexit this scheme was pushed back to 1 October 2020 so that businesses would be given more time to prepare for the changes.
The implementation date has been pushed back again (due to the ongoing crisis) and HMRC have announced that this scheme will now be introduced from 1 March 2021.
What Is The Scheme?
This scheme will significantly alter the way VAT is collected through the business and construction industry. In short the customer receiving the supply in such transactions will become responsible for accounting for the VAT due to HMRC. Currently, the VAT is paid over to the supplier and they account for the VAT due.
From 1 March 2021, the customer will now be accounting for the VAT due, but that VAT due will also be considered as input tax for them as well (meaning it is offset against the total VAT due) which means the overall VAT impact is neutral.
Invoices issued by suppliers, will look different and they will need to indicate that the reverse charge rules are applying.
What Transactions Does This Scheme Apply To?
This will only apply to transactions that are reported under the Construction Industry Scheme (CIS) scheme and where both the contractor and sub-contractor are registered for VAT. This scheme will not apply to materials supplied outside of any construction services or any transaction where one of the parties is not CIS or VAT registered.
Reverse charge applies to standard and reduced rated supplies. It will not apply to zero rated supplies.
Although this scheme is now not going to be introduced until next year, it is still worth considering which existing contracts will be subject to this change so that you are ready to meet the changes.
It will also be worth getting familiar with what is and is not included under this charge and communicate this with all parties you deal with in this regard, so that they are aware of the changes.
Should you need any assistance with regards to this please do not hesitate to contact us.