- Domestic reverse charge for construction services | From 1 March 2021
- EU VAT refund claims for VAT incurred before 1 January 2021 | 31 March 2021
- Making tax digital (MTD) for VAT | From 1 April 2021
Issue: A new VAT reverse charge comes into force, which aims to reduce the amount of VAT fraud in the construction industry where dishonest suppliers ‘go missing’ before paying the VAT they have collected to HMRC. The new reverse charge will apply to supplies of certain construction services (broadly those defined as construction operations under the construction industry scheme) when the recipient makes an onward supply of those same services. The supplier must issue an invoice without charging VAT, stating that the service is subject to the domestic reverse charge. The recipient must then account for the VAT itself on its VAT return, and recover that VAT as input tax, subject to the normal rules.
In general, only invoices issued for construction services supplied to an ‘end user’ (a business that will not make an onward supply of construction services) are excluded from the scheme and subject to existing VAT accounting rules.
Action: Construction businesses that have not already taken steps to prepare for the necessary changes to their accounting systems should do so urgently. They should also prepare for the cash flow impact that will arise due to no longer receiving the VAT element of payments from their customers up to three months before it is payable to HMRC.
Issue: Due to the UK’s withdrawal from the EU, businesses that wish to recover VAT incurred in the calendar year of 2020 have a much tighter deadline than usual to submit their EU VAT refund claims. UK businesses seeking to recover VAT paid in the EU and EU businesses seeking to recover VAT incurred in the UK before the end of the EU withdrawal transition period must submit their claims via the electronic portal for EU VAT refund claims by 31 March 2021. This is considerably earlier than the 30 September annual deadline claimants have been used to in the past.
Action: Businesses with VAT to claim should take urgent action to identify VAT recoverable under this scheme and gather the evidence required to make the claim by the 31 March deadline.
Issue: Most VAT registered businesses with taxable income over the VAT registration threshold (£85,000) have been required to keep records in digital form and submit their VAT returns using MTD compatible software for VAT periods since 1 April or 1 October 2019. All affected businesses are required to have full digital links between the MTD compatible software used to maintain their digital VAT records from 1 April 2021.
Action: Affected businesses that have not already taken steps to ensure they have full digital links between the MTD compatible software used to maintain their digital VAT records, should do so urgently. Affected businesses should ensure that they have addressed all the requirements, which may necessitate new processes, procedures and possibly new software, in order to ensure they are compliant from 1 April 2021.
For more information please get in touch with Ian Carpenter.