Contractors and subcontractors registered for VAT and the Construction Industry Scheme will need to use the VAT reverse charge process for building and construction services from 1 March 2021.
VAT registered subcontractors affected by this change will no longer add VAT to their invoices to contractors. Instead, the contractors’ accounting system will need to add the deemed VAT to their VAT return on behalf of subcontractors, and at the same time, deduct the same amount as input VAT on the same return.
This will sound complicated but most accounting software can cope with the entries required. If you need help to set this up please call.
Contractors will only pay their VAT registered subcontractors the VAT-free amount invoiced, and as the reverse charge adjustment increases both input and output VAT by the same amount there is no cash penalty for either party.
This new process only applies to certain types of services provided by subcontractors.
Please check with us if you feel you are affected but don’t know how to make or judge what you need to do.
If you have bookkeeping software that can be adapted to deal with this change then once appropriate changes are made, processing subcontractors’ invoices should be no more difficult than before the change to the reverse charge.
