Pierce advises construction firms about major VAT changes

Local accountancy firm Pierce is warning construction businesses to be prepared for major changes to the sector as VAT reverse charges are set to be introduced.

The Blackburn-based business, is urging the construction industry to get ready for October 1, when new legislation comes into force, meaning customers receiving a service or goods under the Construction Industry Scheme (CIS) will have to pay the VAT due to HMRC rather than the supplier.

Only individuals and businesses registered for VAT in the UK will be affected.

The implementation will bring challenges to companies. Invoices will need to change meaning accountancy software will need updating and it may bring cashflow implications.

Businesses in the sector need to identify where they sit in the supply chain and inform sub-contractors of the legislation as it’s likely they won’t be aware of it.

Staff responsible for VAT accounting need to be familiar with the reverse charge and how it will operate, as errors could prove costly.

If the VAT is paid in error to a VAT registered sub-contractor, it is the construction firm’s responsibility to request a re-issued invoice and obtain a refund from the sub-contractor.

Ben Smith, director at Pierce, said: “VAT reverse charges will have a really big impact on the construction industry.

“My advice to any firms would be to find out how it affects them, communicate with suppliers and sub-contractors so they are aware of the legislation, and ensure that all back-office processes are in place ahead of October. This may also include the need for some cashflow planning.

“Genuine mistakes could prove costly for firms and there is a lot of uncertainty about the rules for existing contracts. If companies have any doubts about the processes, they should seek professional advice.”

Update Sept 2019 : This has now been delayed until October 2020!


Changes within the Construction Industry

Construiction Industry Changes

In the Budget of 2014 the Chancellor announced that the Government would consult on options to improve the operation of the Construction Industry Scheme (CIS) and on the introduction of mandatory on-line CIS filing for contractors.

Following the consultation, the following changes will now come into force from 6 April 2016.

Online Filing

At present, contractors can submit monthly CIS returns by paper or online. From 6 April 2016, the online filing of CIS returns will be compulsory, unless this is not possible due to age, disability of the remoteness of location. The Government expects a small number of taxpayers to have to buy a computer and/or subscribe for internet access.

Check your current system

Please ensure you are able to submit online via HMRC government gateway, you must be registered to use this service or alternatively have a system that can file electronically.

The compliance test for gross payment status

At present, the compliance test for gross payment status covers not only CIS-related matters, but also PAYE and corporate tax compliance and for companies, the Directors’ personal tax compliance.

From 6 April 2016, the test will be simplified, but will still include an obligation to:

  • Submit monthly CIS returns on time
  • Submit income tax and corporation tax self-assessment returns on time
  • Remit all CIS, PAYE and National Insurance contributions on time.

The turnover test for gross payment status

The current turnover test for gross payment status requires businesses to have a construction turnover, excluding VAT and cost of materials, of at least:

  • £30,000 each year for a sole trader or company director
  • £30,000 for each partner or director in larger businesses, with minimum turnover capped at a ceiling of £200,000 for a whole partnership or company.

From 6 April 2016, the threshold where there are multiple partners or directors will be reduced to £100,000, although the £30,000 limit for sole traders or directors will remain.

CIS Appeals

All contractors will be expected to submit CIS appeals online rather than in writing.

Online verification of subcontractors

At present, contractors have to verify whether subcontractors can be paid gross or whether a withholding tax has to be made from the payments. This process, known as verification, can be undertaken either by telephone on line. From 6 April 2017, the telephone option will no longer be available, other than for non-routine cases. Some improvements are due to be made to the online verification process following a consultation document.