A new scheme for collection of VAT charged by sub-contractors that was due to take effect on 1st October 2019 has now been delayed for 12 months.

Previous post as below:-

The construction press are suggesting it could cause a cash-flow crisis at the very worst time for smaller construction business just before the UK is due to leave EU and whilst still coping with Making Tax Digital.

It may be that the timing of the domestic reverse charge will change, but it is an anti-fraud measure, so any date change is likely to only be a delay and we wanted to let you know more about it so that you are forewarned at the very least.

The full details are available on HMRC website:- https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

Basically what will happen is that Main Contractors will not pay their sub-contractors the VAT element of Invoices received, but will pay it direct to HMRC recording it within their CIS reports. This could mean that a sub-contractor will not see any ‘benefit’ from the VAT charged until there is settlement of their VAT return for the appropriate period which may be some months afterwards. Please note that sub-contractors can apply to send in monthly VAT returns to help get over this problem if they are likely to be a repayment traders (i.e those who will get a VAT refund from HMRC because they have paid more VAT than they have charged out).

It is worth noting that the VAT amount for reverse charge will be for the whole of the service provided, not just the ‘wage’ portion as declared for CIS tax deductions.

This will not effect those who work direct for a client who is not a ‘Contractor’ as defined by CIS rules, nor any zero-rated supplies.

The Main Contractors you work for may have started to warn you about this so you are aware, but being prepared for a reduced cash flow after raising Invoices is something else and you should consider applying for monthly VAT returns sooner rather than later if that seems appropriate to you.

The information given above is provided as a guide only and HCTA members should check for themselves their own company situation in respect of the VAT domestic reverse charge.

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