Category: Construction Industry Scheme

New VAT rules for building contractors and sub-contractors came into effect on 1 March 2021. The new rules make the supply of most construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge only applies to supplies of specified construction services to other businesses in the construction sector.

HMRC’s guidance states that you must use the reverse charge for the following services:

• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
• installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
• painting or decorating the inside or the external surfaces of any building or structure
• services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

This means that for these specified supplies, sub-contractors no longer add VAT to their supplies to most building customers, instead, the contractors are obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge. On the same VAT return, contractors can claim back the deemed input tax on the supply subject to the usual rules.

The Construction Industry Scheme (CIS) is a set of special rules that affect tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and will need to be aware of the tax implications of the scheme.

Under the CIS, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance liabilities.

Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment.

Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors. The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to apply for gross payment status when the contractor will not make any deductions and the subcontractor is responsible to pay all their tax and National Insurance at the end of the tax year.

The CIS covers most construction work carried out in the UK, including jobs such as:

• site preparation
• alterations
• dismantling
• construction
• repairs
• decorating
• demolition

Exceptions to the definition of construction work includes professional work done by architects and surveyors, carpet fitting, scaffolding hire (with no labour) and work on construction sites that’s clearly not construction. The CIS does not apply to construction work carried on outside the UK.

A further reminder that new VAT rules for the construction sector or building contractors and sub-contractors will come into effect from 1 March 2021. The new rules were originally expected to commence from 1 October 2019, but an initial 12-month delay was announced. The start date was then delayed for a further 5 months until 1 March 2021 due to the impact of the coronavirus pandemic.

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

The new rules will make the supply of most construction services between the construction sector or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

This means that from 1 March 2021, sub-contractors will no longer add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge. However, there is no loss of cash flow as the deemed output VAT can be deducted as input VAT subject to any existing restrictions; in this way the two entries on VAT returns cancel each other out.

This change will mean you that contractors will have to alter the way that supplies from sub-contractors are treated by their accounting software.

HMRC’s guidance states that, for invoices issued for specified supplies that become liable to the reverse charge, the VAT treatment for invoices with a tax point:

• before 1 March 2021 – the normal VAT rules will apply, and VAT registered subcontractors should charge VAT at the appropriate rate on supplies
• on or after 1 March 2021 – the domestic reverse charge will apply.

If you need any further help; feel free to contact us.

CIS Abuse Rules A shake-up of VAT rules could impact the cash flow of businesses in the construction sector, many of whom are covered by the Construction Industry Scheme (CIS).

The UK government is rolling out a reverse charge initiative aimed at tackling fraud within the construction industry. This happens when suppliers or ‘subcontractors’ charge main contractors VAT but ‘disappear’ before passing the same to HMRC.

https://www.gov.uk/government/publications/changes-to-tackle-construction-industry-scheme-abuse/changes-to-tackle-construction-industry-scheme-abuse

The Construction Industry Scheme (CIS) is a set of special CIS Abuse Rules for tax and National Insurance for those working in the construction industry. It was announced at Spring Budget 2020 that a consultation on measures to tackle abuse of the CIS would be launched.

Please have a look at our VAT services page to know more about VAT services.

Following the consultation and further meetings with those working in the sector four new changes to prevent CIS abuse are set to come into effect from 6 April 2021.

1. CIS set-off amendment power. The measure provides a power to allow HMRC to amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information Employer Payment Summary returns.
2. Cost of materials. The measure makes it clear that it is only where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract, that the cost in question is not subject to deduction under the CIS.
3. Deemed contractors. The measure changes the rules for determining which entities operating outside the construction sector need to operate the CIS.
4. CIS registration penalty. The measure expands the scope of the penalty for supplying false information when applying for gross payment status (GPS) or payment under deduction within the CIS.

If you are looking to know more about this, feel free to contact us.

From 1 March 2020, contractors who employ subcontractors, will need to assume responsibility for declaring and paying the VAT that was previously settled by their VAT registered subcontractors.

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

Guidance on the workings of the domestic reverse charge (referred to as the reverse charge) has been published by HMRC. The reverse charge will affect certain specified supplies of building and construction services supplied at the standard or reduced rates that are reported under the Construction Industry Scheme (CIS). This will place the onus for dealing with the VAT charge due on subcontractors’ bills, on the main contractor.

There are now less than 5 months until the new rules come into effect and you should ensure that your construction clients are making the necessary preparations.

Affected construction clients should:

• make sure their accounting systems and software can deal with the reverse charge
• consider whether the change will impact their cash flow
• make sure all their staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work

You must use the reverse charge for the following services:

• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
• installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
• painting or decorating the inside or the external surfaces of any building or structure
• services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

If you are looking for more information; please book a call with us.