Megan Joyce

THE NEW VAT RULES FOR CONSTRUCTION SECTOR START ON 1 MARCH 2021

INTRODUCTION

New VAT rules are due to come into effect this March which will impact on accounting for VAT for transactions in the construction sector. The new rules are called “the domestic reverse charge for supplies of building and construction services”. 

The new “reverse charge” system of VAT accounting will affect sub- contractors supplying their services to other contractors in the construction sector. 

Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the new reverse charge system, the sub-contractor will not charge VAT on their invoice to the contractor for whom they are working and will not account for output VAT, although they will identify the rate and amount of VAT due and notify their customer that the VAT must be accounted for by them on their VAT return.  The sub-contractor will there be paid only the net value of the work done without the VAT.

The contractor receiving supplies from the sub-contractor will be obliged to enter the VAT identified on their sub-contractor’s invoice in box 1 of their VAT return as well as claiming this back in box 4 of the return.

This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors, some of whom were allegedly fraudulent businesses not paying over the VAT charged to HMRC.

The new reverse charge will apply to a wide range of services in the building trade, primarily those activities covered by the construction industry (CIS) payment rules. Note that normal VAT invoices will continue to be issued to domestic customers and other “end users” as defined under the scheme. 

SERVICES TO WHICH THE REVERSE CHARGE APPLIES 

You must use the reverse charge for the following services:

• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services.
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence.
• installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure.
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration.
• painting or decorating the inside or the external surfaces of any building or structure.
• services which form an integral part of or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

You cannot use the reverse charge for the following services, when supplied on their own:

• drilling for, or extracting, oil or natural gas.
• extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose.
• manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site.
• manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site.
• the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants.
• making, installing and repairing art works such as sculptures, murals and other items that are purely artistic signwriting and erecting, installing and repairing signboards and advertisements.
• installing seating, blinds and shutters.
• installing security systems, including burglar alarms, closed circuit television

HOW TO PREPARE FOR CHANGES

It is important to make sure your accounting systems and software can deal with the reverse charge. You should also consider whether the change will impact your cash flow and most importantly – make sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work.

WHO DOES THE REVERSE CHARGE APPLY TO? 

Typically it will affect sub-contractors supplying their services to other contractors in the construction sector. 

This applies if the services provided are:

• standard rated or reduced rated, and
• within the scope of CIS.

Supply and fit

Although the provisions apply principally to services in the construction sector, they cover all supplies of labour and materials in a single contract or transaction.  This is the case even where only the labour element must be reported under CIS.

Labour only sub-contractors

The reverse charge applies to services provided by labour only sub-contractors. The labour only sub-contractor is responsible for the works carried out and therefore subject to the reverse charge provisions.  This can be contrasted with a supply of staff, which is not covered (see “Employment businesses” below), since in those cases the supplier takes no responsibility for the work done.

KEY DEFINITIONS AND SPECIFIC GUIDANCE ON WHETHER THE REVERSE CHARGE APPLIES 

End users

The reverse charge is not intended to apply where a contractor works directly for an end user.  End users are consumers and businesses, or groups of businesses, that are VAT and Construction Industry Scheme registered but do not make onward supplies of the building and construction services supplied to them, namely those who have an interest in the land where the work is being undertaken.  Where the end user is VAT and CIS registered, the reverse charge does not apply to supplies made to them where they notify the contractor in writing that they are an end user.

Intermediary suppliers

Intermediary suppliers are VAT and CIS registered businesses that are in a corporate group with an end user as defined above. If an intermediary supplier buys construction services and re-supplies them to an end user in the same corporate group, they are all treated as if they are an end user and the reverse charge does not apply, if they notify the contractor that they are an end user. 

Employment businesses supplying construction workers.

Employment businesses are treated differently for the purpose of the reverse charge. Supplies by employment businesses (also known as labour agencies) are not subject to the reverse charge, even if those supplies are within the scope of CIS. Employment businesses supplying construction workers are, for VAT purposes, treated as supplying staff rather than building and construction services.

USING THE REVERSE CHARGE: SUPPLIERS 

You must use the reverse charge from 1 March 2021, if you are VAT registered in the UK, supply building and construction industry services and:

• your customer is registered for VAT in the UK.
• payment for the supply is reported within the Construction Industry Scheme (CIS).
• the services you supply are standard or reduced rated.
• you are not an employment business supplying either staff or workers, or both.
• your customer has not given written confirmation that they are an end user or intermediary supplier.

The practical steps you will need to take are:

• Check if your customer has a valid VAT number.
• Check your customer’s CIS registration.
• Review your contracts to decide if the reverse charge will apply and tell your customers.
• Ask your customer to confirm whether they are an end user or intermediary supplier.
• Make arrangements to alter your invoicing to identify the rate and amount of VAT due but not to charge it to your customer, also ensuring that a narrative appears on the invoice instructing the customer to declare the VAT on their VAT return.
• Find out how to record the reverse chargeable transactions in your accounts. 
• Analyse the impact of the new rules on your cash flow and consider applying for monthly VAT returns.

USING THE REVERSE CHARGE: CUSTOMERS

You must account for the reverse charge from 1 March 2021, if you are VAT registered in the UK, receive supplies of building and construction industry services and:

• your supplier is registered for VAT in the UK.
• payment for the supply is reported within the Construction Industry Scheme (CIS).
• the services you receive are standard or reduced rated.
• your supplier is not an employment business supplying either staff or workers, or both.
• you are not an end user or intermediary supplier who has notified your suppliers of that fact.

The practical steps you will need to take are:

• Check if your supplier has a valid VAT number.
• Check your supplier’s CIS registration.
• Review your contracts to decide if the reverse charge will apply and tell your suppliers you will not accept normal VAT invoices.
• Make arrangements to account on your VAT returns for the VAT identified as due to HMRC on your suppliers’ invoices.
• Ensure that you refuse any normal VAT invoice issued to you by a sub-contractor where the reverse charge should be applied.
• Make arrangements to pay only the net value of the work to your sub-contractors.
• Find out how to account for the reverse charge transactions in your accounts. 

BUSINESSES THAT ARE BOTH SUPPLIERS AND CUSTOMERS 

Many businesses in the construction sector are both suppliers and customers, who will be affected in relation to purchases and sales. The above practical steps will need to be taken in respect of both.

SUMMARY

If you are a sub-contractor you should also be aware that your customers will no longer be paying you VAT, which will reduce the gross value of payments coming into your business. So you should consider and plan for the impact of this on your day-to-day cashflow. Please talk to us about projecting your cash flow forward so you can manage the change.  

If you are a sub-contractor using the VAT flat rate scheme, it may be beneficial to leave that scheme as you may be entitled to a VAT refund on your expenses from 1 March 2021. 

If you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system when it starts. We are cloud accounting specialists and can recommend the right software to you comply with the new rules and advise on other changes to help you and your business.

If you would like any more information on the new VAT rules for the construction sector then please contact us using our details below: 

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk  

BREXIT UPDATE

Introduction

The UK and the EU agreed future trading terms of the UK-EU Trade and Cooperation Agreement. The UK has approved the agreement and it came into effect provisionally on 31 December 2020, whilst awaiting the EU to take steps to approve it. See the agreement here.

Brexit: new rules – Government guidance

The Government has updated its guidance on the new rules that apply to travel and doing business with Europe. Clearly there are problems with the administration just now and we will keep you up to date of any issues as they arise. 

You can check using the website below on what you need to do differently if you are:

• Importing goods from the EU
• Exporting goods to the EU
• Moving goods to or from Northern Ireland
• Providing services to EU countries
• Travelling to the EU
• living and working in the EU
• Staying in the UK if you are an EU citizen

See the new rules here.

Selling services to the EU, Switzerland, Norway, Iceland and Liechtenstein

The UK-EU Trade and Cooperation Agreement ensures that UK firms in a variety of service sectors can continue to access the EU market, including as business travellers and cross-border services suppliers or investors, while being treated no less favourably than either EU businesses or competitors from third countries.

While the Agreement sets out expectations of the treatment and level of access to each Party’s domestic market, there will still be some changes for business as a result of no longer operating under European Economic Area (EEA) regulation covering cross-border trade in services. These changes are different for each sector and differ in each member state of the EU.

For Government guidance for UK businesses on rules for selling services see here.

There are country guides and information for UK businesses providing services and travelling for business to countries in the EEA and Switzerland, access the country guides here.

Data sharing 

How this affects your business will depend on several factors, including the nature of your business and where your customers are located. Data sharing with the EEA is one of the key areas to consider. 

The Government has legislated so that UK firms can continue to lawfully send personal data from the UK to the EEA and 13 other countries that the EU has deemed to provide an adequate level of protection of personal data. They have also announced that the UK-EU Trade and Cooperation Agreement provides for the continued free flow of personal data from the EU and EEA to the UK until adequacy decisions are adopted, for no longer than 6 months.

The Information Commissioner’s Office (ICO) states that the agreement between the UK and the EU enables businesses and public bodies across all sectors to continue to freely receive data from the EU (and EEA). However, as a sensible precaution, the ICO recommends that businesses work with EU and EEA organisations who transfer personal data to them, to put in place alternative transfer mechanisms to safeguard against any interruption to the free flow of EU to UK personal data.

This means that that businesses and organisations can be confident in the free flow of personal data from 1 January, without having to make any changes to their data protection practices.

See here for more information.

The new rules will take some time to “bed in” and we will keep you updated on practical actions to take and as new rules or agreements are made between the UK and the EU.   

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk  

BREXIT TRADE AGREEMENT

The transition period for the UK leaving the EU has ended. The EU and UK have struck a trade deal, and this has been ratified by the UK Parliament so from 1 January we are trading with the EU quota and tariff “free”. There are new Customs regulations and VAT requirements to get to grips with, but we have every confidence once we get used to the new system imports and exports will continue to flow.

The full agreement is entitled “trade and cooperation agreement between the European Union and the European atomic energy community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part” and can be seen here.

THE KEY POINTS OF THE AGREEMENT ARE:

• Travel – UK nationals will need a visa for stays longer than 90 days in a 180-day period and there will be new procedures for UK travellers at EU borders.  European Health Insurance Cards (EHIC) will remain valid until they expire. Mobile roaming charges may change so if you are using your phone abroad check with your plan provider first.
  
• Trade – There will be no tariff charges on goods or quota limits on the amount that can be traded from 1 January. However there will be Customs checks at borders and customs declarations will need to be made by exporters from the EU and the UK.
  
• Services – UK financial businesses lose their access to EU customers (many larger firms have already established subsidiaries within the EU to continue access) and whilst the UK has granted EU businesses temporary permission to continue servicing UK customers, there is no reciprocal EU agreement for UK businesses as yet. We expect regulatory discussions about “equivalence” in 2021 and hopefully, an arrangement whereby UK firms will get access to EU customers.       

There is a Government Brexit checker to assist with the planning for business, family, and personal circumstances. Use the Brexit checker to get a personalised list of actions. You can also sign up for emails to get updates for what you need to do. See here for more information.    

There are other agreements on fishing, security, the Justice system and study which have been widely commented on in the last few days and it is now a question of moving forward with the agreement and we will keep you informed of the practical measures that follow.

If you would like any more information on the Brexit trade agreement then please contact us using our details below: 

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk  

EXPORTING – GETTING AN EORI NUMBER

From 1 January 2021 you need an EORI number to move goods between the UK and the EU.

You can apply for your EORI number in advance. It can take up to a week to get one.

You will not usually need an EORI number if you only:

• Provide services
• Move goods between Northern Ireland and Ireland  
• If you use a post or parcel company they will tell you if you need an EORI number.

You will need an EU EORI number if your business will be making customs declarations or getting a customs decision in the EU. Get this from the customs authority in the EU country where you submit your first declaration or request your first decision.

IF YOU ALREADY HAVE AN EORI

From 1 January 2021 you’ll need an EORI number that starts with GB to move goods to or from the UK.

Check your EORI number. Apply for a new one if yours does not start with GB.

BEFORE YOU APPLY 

To apply you may need your:

• VAT number and effective date of registration – these are on your VAT registration certificate
• National Insurance number – if you’re an individual or a sole trader
• Unique Taxpayer Reference (UTR) 
• Business start date and Standard Industrial Classification (SIC) code – these are in the Companies House register
• Government Gateway user ID and password

If you need a Government Gateway user ID, use either:

• The one for your business or organisation
• Your own if you’re applying as an individual

If you do not already have a user ID, you’ll be able to create one when you apply. To apply for an EORI number please see here.

If you would like any more information on getting an EORI number then please contact us using our details below: 

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk  

IMPORTING GOODS BY POST 

(FROM THE EU INTO GREAT BRITAIN) FROM 1 JANUARY 2021

The Government has issued guidance on preparing to import goods from the EU to Great Britain from 1 January 2021.

Guidance on preparing to import for goods from the EU to the UK can be seen here

The process for importing goods from the EU will change. Businesses in Great Britain need to complete the following actions to continue importing from EU countries from 1 January 2021.

Great Britain is England, Wales and Scotland.

Guidance on moving goods into, out of and through Northern Ireland will be added to GOV.UK in the coming weeks. See here for more information.

The GB guidance covers:

NOTICE 144: TRADE IMPORTS BY POST, HOW TO COMPLETE CUSTOMS DOCUMENTS 

This notice is for postal importers of trade consignments who have to make a declaration on a Single Administrative Document (SAD).

This notice is intended to give general guidance to postal importers of trade consignments for which a declaration (entry) on a SAD is required. Further information on the completion of SAD forms is contained in the Integrated Tariff of the United Kingdom (the Tariff).

This notice is not the law and does not change the law.

IMPORT DECLARATION

All goods arriving in the United Kingdom by post from any country outside the EU must be declared to HMRC. In most cases, this means the sender making a Customs declaration on a form which is attached to the package. However, certain goods must be declared on a SAD – this is a UK and EU form used to legally declare imported goods to Customs also known as an import entry.

In the UK, the SAD is also known as Form C88. The specific version for postal imports is Form C88A.

WHEN IS A DECLARATION ON SAD REQUIRED?

A full import declaration on a SAD is required for all postal imports exceeding £750 (1,000 Euros) declared to home use and free circulation. For imports declared to one of the special procedures (that is, temporary admission, customs warehousing, inward processing and end use) a full customs declaration (SAD) is required to be submitted to CHIEF (Customs Handling of Import and Export Freight) in some cases (including where an “authorisation by declaration” (formerly known as a “simplified” authorisation) is used. The submission of the declaration to CHIEF allows for the guarantee (which is new requirement under the Union Customs Code) to be taken where necessary. A SAD is also required for returned goods relief over £600.”

WHAT FORM DO I USE TO DECLARE (ENTER) TRADE IMPORTS BY POST? 

The SAD for postal imports is form C88A. You must use this when declaring your goods to HMRC. They will send you a copy to complete and return. Another form, C87 Notice of Arrival of Goods by Post also accompanies the SAD. This advises you that the goods have arrived in the UK but cannot be delivered until you complete and return the SAD form to HMRC. It also gives a Customs reference number associated with your package. Please quote this number if you need to speak to HMRC about your package.

Use one SAD for goods covered by each Commodity code. Additional forms can be obtained by contacting HMRC at the postal depot where your package is being held.

Guidance on completion of the SAD is covered on the webpage outlined above.

If you have a question about Excise or Customs Duty use the webpage above or:

Telephone: 0300 200 3700. 

The address for questions by post is: HM Revenue and Customs, EEC, 10th Floor SW, Alexander House, Victoria Avenue, Southend-on-Sea, Essex, SS99 1AA

APPLY TO IMPORT MULTIPLE LOW VALUE PARCELS ON ONE DECLARATION FROM JANUARY 1 2021

You can use the bulk import reduced data set to declare one or more low value parcels in a single import declaration when you import goods to Great Britain.

If you have free circulation procedure goods contained within one or more postal packets, you may be able to use this process where:

• each postal packet is sent from a country or territory outside the UK to a recipient in Great Britain
• at the time of import, each postal packet contains goods with a relief from import duty available to the recipient of the goods
• the postal packets are imported in such manner as may be specified in a notice published by HMRC
• the total value of each postal packet imported is £135 or less
• the VAT for each postal packet is subject to UK supply VAT, rather than import VAT

A postal packet is where goods are contained in:

• a letter
• a parcel
• a packet
• another article transmissible by post

If you are already using low value bulking of imports or have used low value bulking of imports, you still may need to apply for authorisation for the bulk import reduced data set.

HMRC will check your records and tell you after 1 October 2020 if you need to apply for authorisation.

To become authorised to make these bulk declarations, you will need to:

• be established in the UK
• have a good customs compliance record, including VAT Returns and duty deferments
• show how you’ll identify and report any errors found after you’ve submitted your final bulked declaration, where applicable
• carry out declaration procedures to a professional standard
• have procedures in place to make sure you do not import prohibited goods
• have licences for any restricted goods
• have procedures in place to manage customs declarations

You may also need to apply for import licences and certificates for some goods you import.

Applications advice can be seen here

After you have applied HMRC will send a letter telling you if your application has been successful. It will also set out the conditions of the authorisation, such as how you:

• make declarations
• keep records
• tell HMRC about any issues or errors

You also will get an authorisation number that you can use on your declarations in the Customs Handling of Import and Export Freight (CHIEF) system.

Once you are authorised, you must:

• maintain complete and accurate records for 4 years for import and export purposes
• maintain complete and accurate records for 6 years for VAT purposes
• follow the conditions set out in the authorisation letter
• inform HMRC about any changes to your information in your application

If you would like any more information about the changes regarding Importing goods by post after the transition period then please contact us using our details below: 

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk