New VAT rules for building contractors and sub-contractors come into effect from 1 March 2021. The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

Guidance on the workings of the domestic reverse charge (referred to as the reverse charge) has been published by HMRC. The reverse charge will affect certain specified supplies of building and construction services supplied at the standard or reduced rates that are reported under the Construction Industry Scheme (CIS). This will place the onus for dealing with the VAT charge due on subcontractors’ bills, on the main contractor.

There are now less than 5 months until the new rules come into effect and you should ensure that your construction clients are making the necessary preparations.

Affected construction clients should:

• make sure their accounting systems and software can deal with the reverse charge
• consider whether the change will impact their cash flow
• make sure all their staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work