Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain are no longer invoiced in the normal way. Under the new reverse charge system, the sub-contractor does not show VAT on their invoice to the main contractor and does not account for output VAT on that transaction.

 

The new reverse charge applies to activities covered by the construction industry scheme (CIS) payment rules. So if Eddie the Electrician does £10,000 of work for Big Builder Ltd after 1 March he no longer shows VAT on his invoice. Big Builder Ltd will record £2,000 (20%) as input tax and output tax. Note that normal VAT invoices will continue to be issued to domestic customers and end-users.

 

Please contact us if you need help understanding this new system.  Note also that 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.

 

Buy new equipment before 6 April?

Your business year end, not 5 April, is relevant for capital allowances purposes. If however you are running a business and making up accounts to 31 March or 5 April you should consider buying plant and machinery to take advantage of the £1 million Annual Investment Allowance (AIA).

 

The AIA provides a 100% tax write off for equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems. AIA does not apply to motor cars but there is a special 100% tax relief if you buy a new car that emits no more than 50g CO2 per kilometer. Note however that from April 2021 100% tax relief will only apply where there are zero emissions.

 

Related services:

VAT

Corporate tax services

IR35