VAT Update - Making Tax Digital and Construction Industry Reverse Charge

As we enter the new year we thought it would useful to provide a brief update on upcoming changes to VAT and the reporting thereon:

MTD Changes from 1 April 2021

From April 2019 all VAT registered businesses with a taxable turnover of more than £85k have been required to adopt ‘Making Tax Digital’ rules, in essence the maintaining of certain records digitally and submission of returns through HMRC-compatible software.

Up to now HMRC have given a “soft-landing period” and allowed businesses time to put the necessary digital links in place and comply with the rules fully. From 1 April 2021 this soft landing comes to an end and all businesses which meet the requirements for MTD must comply to avoid penalties.

Furthermore, from 1 April 2022 HMRC are extending MTD further such that all VAT registered businesses must sign up regardless of turnover size - it is therefore advisable that steps are taken by relevant businesses to ensure they are ‘MTD-ready’ for whichever rules apply to them.

Construction Industry Reverse Charge

The building and construction VAT domestic reverse charge was initially set to take effect from 1 October 2019 but due to industry delays and then Covid-19 has been stalled twice.

HMRC is currently advising the implementation of the scheme remains scheduled for 1 March 2021 – there is industry pressure for this to be further delayed due to Covid, however at present the rollout is due to take place as planned.

Overview

As a brief reminder of the new measures (designed to counter large-scale avoidance where suppliers charge VAT and then disappear before HMRC receive it), where both supplier and customer are VAT registered the customer receiving relevant services will account for the output VAT rather than the supplier.

Rules

From 1 March 2021 the charge applies to supplies in the construction industry where:

• Both parties are VAT registered in the UK
• Payments for construction supplies are reported in the Construction Industry Scheme
• Applies to standard and reduced rate supplies (not zero rated)

These rules do not apply to ‘End Users’ or ‘Intermediary suppliers’.

For these exceptions to apply, the End User or Intermediary supplier must notify their supplier in writing of their status - without this the supplier assumes the reverse charge applies and the end user is liable for accounting for the output VAT.

Compliance

Suppliers will need to assess their customers VAT, CIS and end user status before engaging.

Where the rules apply, suppliers must show on their invoices:

• That the reverse charge applies
• The rate of VAT or how much VAT is due under the charge

If you need any support or advice on any of these matters please give one of the team a call and we will be happy to help.