Get ready for domestic reverse charge

The domestic reverse charge is coming into effect on 1st March after being twice delayed, first due to Brexit and then coronavirus.

Under the changes, only contractors working directly for ‘end users’ will be paid VAT in the normal way. Contractors who then sublet some of that work will have to pay the VAT on those transactions directly to HMRC instead of paying it to their CIS registered subcontractors. Material only suppliers and employment businesses are exempt and will still be paid VAT as normal.

The changes will have the greatest impact on large specialist subcontractors who provide materials and use agency labour, and there will be very little change for contractors in zero rated new build housing.

HMRC, which has just published a technical guide to the new legislation, is inviting companies to make sure their accounting systems and software can deal with the reverse charge and to consider whether the changes will impact their cash flow.

Ian Anfield, managing director of Hudson Contract, said: “We have already helped many companies prepare for the domestic reverse charge and make sure they are familiar with the new rules.

“We surveyed nearly 1,300 clients on the legislation a year ago and found that a quarter of companies were not aware of the changes. Now is the time to get ready.”