Domestic Reverse Charge VAT for construction services coming into force on 1 March 2021

Construction businesses have a lot to contend with this year, from learning how to operate within the challenges of a global pandemic to having to deal with the additional administration caused by Brexit. On top of that, HMRC are still pressing ahead with the introduction of the Domestic Reverse Charge VAT (DRC) for construction services, which comes into effect on 1 March 2021.

The charge applies to standard and reduced-rate VAT services for individuals or businesses who are registered for VAT in the UK reported within the Construction Industry Scheme (CIS). Essentially those effected will receive payments from their customers net of VAT. You can read the updated technical guidance for the DRC for those who buy or sell building and construction services here.

Having originally been introduced in April 2019, and delayed numerous times, companies have had plenty time to prepare for the changes. However, there are concerns that the DRC could have a significant impact on cash flow. Currently, many businesses use the VAT they are paid by their customers to fund payments to their suppliers, until they are required pay it to HMRC with their next VAT return. However, from March 2021, businesses will need to prepare for payments to be received net of VAT. Without the short-term benefit of holding on to the VAT money, many businesses that are unprepared could struggle to pay their suppliers or could even face business failure.

With an estimated 150,000 UK businesses within the construction sector affected by the changes, and only weeks before they come into effect, it is vital to review your business practices to look at how this will impact you in order to properly prepare.

Our EQ Property & Construction team have been working with our clients to ensure they are prepared in advance of 1 March 2021 and can offer advice or support in relation to the new Domestic Reverse Charge VAT. If you would like to discuss your circumstances, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.

Alternatively, if you would like to discuss any VAT issues affecting your business, please email our EQ Taxperts.