Domestic Reverse Charge VAT for construction services comes into force…. maybe

HM Revenue and Customs (HMRC) have issued updated technical guidance for the introduction of the Domestic Reverse Charge VAT (DRC) which will affect most businesses operating in the construction sector who buy or sell building and construction services from 1 March 2021.

Introduced by HMRC to remove the scope for fraudsters who don’t pay the VAT due to them, 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).

With now less than 5 months before the changes finally come into force, HMRC are encouraging Construction Businesses to get up to speed with the impending changes. Although it may not be 100% guaranteed that the changes will come in to force at 1 March 2021, with the latest delay due to the COVID-19 pandemic, HM Treasury have advised that “the government remains committed to introducing the VAT reverse charge for building and construction”.

We are therefore advising our clients to be prepared by:

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

You can read HMRC’s updated technical guide in full here.

If you would like any advice on the new Domestic Reverse Charge VAT, 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.