Rule changes for builders delayed again
Second delay. HMRC has recognised that builders are already under enormous pressure as a result of the coronavirus crisis. The reverse charge rules’ implementation has been pushed back to 1 March 2021. 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.
Cash flow. The rules could make a big difference to your cash flow after 1 March 2021. For example, if you invoice another builder for £50,000 on 31 March 2021, you will no longer charge £10,000 VAT which you would probably collect in April 2021 but not pay to HMRC until 7 August 2021, the payment date for your June 2021 VAT return if you use the cash accounting scheme.
Trap. The 1 March 2021 introduction date is close to the 31 March 2021 deadline when you must pay any VAT deferred in the coronavirus payment holiday period for VAT owed between 20 March and 30 June 2020. This is potentially a double cash-flow hit.
Monthly returns. If most or all of your work will be subject to the reverse charge, it might make sense to submit monthly VAT returns after 1 March 2021, i.e. 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, i.e. to the date of the purchase invoice, if you have little or no output tax to declare.
Tip. 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.
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