To help builders affected by the Coronavirus crisis, the new reverse charge rules for the construction industry has been pushed back to the 1st March 2021. What does the delay mean for your business? Elaine Wight finds out.
HMRC has recognised that builders are already under enormous pressure as a result of the Coronavirus crisis. The outcome of the reverse charge is that builders will not charge 5% or 20% VAT on supplies to other VAT registered builders, with customers dealing with it instead on their own returns.
The rules could make a big difference to your cash flow after 1st March 2021. For example, if you invoice another builder for £50,000 on 31st March 2021, you will no longer charge £10,000 VAT which you would probably collect in April 2021 but not pay to HMRC until 7th August 2021, the payment date for your June 2021 VAT return if you use the cash accounting scheme.
However, the 1st March 2021 introduction date is close to the 31st March 2021 deadline when you must pay any VAT deferred in the Coronavirus payment holiday period for VAT owed between 20th March and 30th June 2020. This is potentially a double cash-flow hit.
If most or all of your work will be subject to the reverse charge, it might make sense to submit monthly VAT returns after 1st March 2021, to accelerate input tax recovery on your expenses. You should also consider withdrawing from the flat rate scheme, if applicable.
Cash accounting scheme
Input tax can only be claimed by scheme users when suppliers are paid. It might also be sensible to withdraw from the cash accounting scheme to speed up input tax recovery, to the date of the purchase invoice, if you have little or no output tax to declare.
You do not need HMRC’s permission to withdraw from the cash accounting scheme but must notify it of your intention to withdraw from the flat rate scheme in writing. Remember that you won’t be able to re-join the scheme for twelve months, and you will need to ensure the requirements of the scheme are met at that later time.
Use the delay to review how the changes will affect your cash flow. Monthly rather than quarterly VAT returns should also be considered, as well as leaving the flat rate or cash accounting scheme to improve VAT recovery.