Reverse Charge in the Construction Industry
Just a reminder that the new Reverse Charge Rules come into effect from 1 March 2021 so businesses who will be affected need to use this month to make sure they are ready.
HMRC have released detailed technical guidance and additional guidance for buyers and sellers.
In brief, the reverse charge applies if:
- The supply is one of CIS type services (detailed list in the guidance)
- The supply is standard rated or reduced rated
- The customers is, or should be, VAT registered
- The customer is CIS registered
- The customer has not provided the supplier with confirmation that they are an end user
Early Termination Payments
Last year I wrote about HMRC Revenue & Customs Brief 12 (2020) which stated that early termination payments followed the tax treatment of the main supply and that where VAT had not been declared, a business should go back and correct the position over the last 4 years.
The concern from a lot of businesses was that this Brief covered dilapidations and other compensation payments which had always been treated as outside the scope of VAT in line with HMRC guidance. This was raised with HMRC by the VAT Practitioners’ Group, and the Chartered Institute of Taxation, as well as other bodies.
HMRC have reviewed this and commented:
“We have received the advice from Counsel. We now consider HMRC has an arguable case to not apply this change retrospectively. In the light of this we will not apply the change retrospectively. Instead the change will apply from 1 February 2021.
Where we are already in litigation, we will consider the facts and whether any alteration to the line we have taken to date is appropriate and communicate that to the businesses concerned.
We will provide you with draft guidance before Christmas for your comments. We would appreciate responses by 12 January. We will then consider if any changes are needed and update the guidance and issue a RCB before the beginning of February. RCB 12 (2020) will be withdrawn.
We will also write to those who have made written representations giving our view of the correct treatment of the transactions they have asked about to the same time table.”
HMRC suggested that a replacement brief would be published before the start of February. I am typing this at 6:30pm on 31st January and cannot yet find a brief. The wording of the original brief was updated on 25 January to say that it will apply from a future date.
Women’s Sanitary Products
Women’s sanitary products, which were previously subject to VAT at the reduced rate of 5% are zero rated with effect from 1 January 2021.