//What does this mean for you? • Subcontractors may need to consider the loss of cash flow. The current opportunity to use VAT to fund cashflowbetween the time it is received from the customer and the time it has to be paid over toHMRC will no longer exist.
• Equally, contractors will no longer suffer a delay between paying out VAT and recovering it, since both will now be dealt with on the same VAT return.
Construction services may be charged at different rates of VAT, being 20%, 5% or 0% dependent upon what work is being undertaken. The onus will now be on the contractor to verify the correct rate to be used for the reverse charge (or if is to be used at all). Before agreeing not to charge VAT on a taxable supply, a supplier of “construction services” will need to be satisfied that the supply falls within the new scheme(and in particular that the customer is a VAT-registered contractor not an end user). It remains to be seen what steps a supplier will be expected to take to verify this or what the position will be should he get it wrong. Main contractors will no longer pay VAT to subcontractors for work they undertake. If a subcontractor does charge VAT incorrectly, HMRC will disallow the VAT reclaim by the main contractor. This is likely to present a major challenge if you’re a main contractor, given the existing difficulty of convincing a subcontractor not to charge VAT on a zero or reduced rated project. After 1 March 2021, you will need to convince subcontractors not to charge VAT at all on their works invoices. The sooner you begin discussing the new scheme with them, the better prepared everyone will be.
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