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Construction services and reverse charge

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. However, 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.

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Last Call ! Option to defer VAT payments ends 30 June 2020

The option to defer your VAT payments ends on 30 June 2020. The Coronavirus VAT payment holiday gave businesses the chance to defer the payment of any VAT liabilities between 20 March 2020 and 30 June 2020.
Businesses that took advantage of deferring their VAT payments should consider the following:                                                                                                  – Re-establish any cancelled direct debits in enough time for HMRC to take VAT payments due from 1 July onwards.
– Going forward, ensure that VAT returns are submitted as normal.
– Pay the VAT in full on any payments due after 30 June 2020.
It is important to note that where the payment of VAT has been deferred, any VAT due must be paid by 31 March 2021. Businesses can also make additional payments with subsequent returns. No interest or penalties will accrue on deferred payments that are paid by the new due date.
There is no application process required to request this deferral as permission is automatic and all VAT-registered UK businesses are eligible. The choice to defer VAT payments was optional and businesses could still choose to pay any VAT due as normal. The deferral did not cover payments for VAT MOSS or import VAT. HMRC has continued to process VAT reclaims and refunds as normal during this time.

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VAT changes for the Construction Industry delayed again

HMRC has announced a second delay to the introduction of the domestic reverse charge for construction sector due to the impact of the coronavirus.
The scheme was due to come in on 1 October 2020 have been delayed for a further 5 months until 1 March 2021.
The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.
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.
Please note!! Contractors will be responsible for paying the deemed output tax, on their VAT return they can usually claim back the same amount as input VAT.
The new rules were originally expected to come into force from 1 October 2019. The initial 12 month delay was announced following intense lobbying by the construction industry who had argued that many businesses in the sector were unprepared for the change. HMRC have confirmed, that even with this additional delay, they remain committed to the implementation of the Domestic Reverse Charge.
There will also be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.

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