Why are HMRC making changes?
HMRC believe £100m of revenue is lost each year as a result of missing-trader fraud, where construction businesses charge VAT to their customers and then disappear before paying it over to HMRC.
In order to combat this, new reverse charge rules will come into force on 1 October 2020, which will have a widespread impact on the construction sector.
These changes were originally planned for 1 October 2019, but after consulting with businesses in the construction sector HMRC announced a 12 month delay to allow businesses more time to prepare.
How will the new rules work?
Under the new rules, businesses supplying construction services must not charge VAT where their customer:
- Is registered for VAT, and
- Will use the services to make an onward supply of construction services.
Instead of the supplier charging VAT, the recipient of the services must self-account for VAT on the services received. This is known as reverse charge accounting.
What services are included?
The new rules will apply to construction services supplied on or after 1 October 2020, regardless of value, even if construction is not the main business activity.
The definition of construction services is wide and mirrors the definitions used for the Construction Industry Scheme (CIS). It also includes goods, such as building materials, but only when supplied as a single package with construction services.
There are some exclusions, such as the installation of seating, blinds, shutters and security systems. Professional services of architects, surveyors and consultants are also excluded. However, where excluded services are supplied as a package with other services which are within the new rules, the whole package will be subject to the reverse charge.
You can view the draft legislation by visiting Gov.uk
Will my software be ready?
With Sage 50cloud Accounts we'll ensure that your software is fully up to date to deal with the changes ahead of the 2020 deadline - one less thing to worry about.
More information about the changes in Sage 50cloud Accounts v26 are available in this article.
Find out more
To read more about the CIS reverse charge changes, please see our CIS Reverse Charge - Common questions.