The VAT Reverse Charge for the Construction Industry Scheme – Are you ready?
From 1 March 2021, businesses within the Construction Industry Scheme (CIS) must record, report and pay VAT under the new VAT domestic reverse charge rules.
This change affects both contractors and subcontractors and the supply of certain kinds of construction services in the UK.
Under the new rules, VAT registered subcontractors who provide a service and any related goods to a VAT-registered contractor who is CIS-registered no longer need to account for the VAT.
Instead, it is the contractor or developer who will account for the VAT as an input tax, as if they made the supply to themselves.
For reverse charge purposes, consumers and final customers are called end users. They are 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.
The reverse charge does not apply to supplies to end users where the end user informs a supplier or building contractor that they are an end user. This should be done in writing to maintain accurate records.
HM Revenue & Customs (HMRC) has defined a list of construction services that the new reverse charge rules apply to, which can be found here.
Where a mixed supply is made containing a reverse charge and ‘normal element’ then you should apply the reverse charge to the entire supply.
You will need to make changes to your invoicing and accounting procedures to take the reverse charge into account, but this may differ depending on whether you are a contractor or subcontractor.
You should also consider the cash flow implications on your business of moving to the new regime, as there may be ways to mitigate the impact.
The reverse charge will apply to all jobs completed on or after 1 March 2021, but it may also apply to work that was commenced before this date but completed afterwards.
Determining when the switch to the new VAT regime takes place depends on the tax point i.e. the date of issue of the VAT invoice or the receipt of payment.
Where the tax point is on or after 1 March 2021 then the reverse charge should be applied even for work commenced before this date. Otherwise, the existing VAT rules apply.
These new rules are mandatory – you cannot opt-in or opt-out, or only apply it to certain invoices – which is why you should seek help now if you believe you are likely to be affected.
Link: The VAT Reverse Charge
HMRC and Companies House have confirmed that from 1 April, all businesses must use compliant, commercial software to file their company’s tax returns. As of 31 March, the free joint online service, commonly known as the CATO portal, from these two Government bodies has been removed and you must now use software to file company tax returns to HMRC. For the time being, you will still be able to file annual accounts at Companies House using third-party software, WebFiling services or paper filing. The decision has been made to end this service as it is “outdated and no longer aligns with modern digital standards”, according to Companies House. This change is in line with the introduction of the Economic Crime and Corporate Transparency Act, which implemented “enhanced corporation tax requirements and changes to UK company law.” It also follows on from a major IT security breach at Companies House, identified in March 2026, that exposed the WebFiling system and allowed some users to potentially access and amend the details of other companies. Although the breach has now been resolved and security strengthened, it has raised concerns about the reliability of GOV.UK One Login service. Can you still amend previous returns using the free service? HMRC and Companies House have confirmed that now that the free filing service has closed, company directors will have to use commercial tax software if they need to make changes to a previously submitted Corporation Tax return or refile a rejected return. From now onwards, any previously filed financial information will no longer be available in the system, as it has not been retained and will need to be entered again. HMRC has said that, for amendments, it will also be acceptable to send a paper return to the Corporation Tax Services office. If you have previously filed financial accounts with Companies House and you want to make changes or corrections, this will also need to be done via commercial software or by sending paper accounts to Companies House via post. Are there any exceptions to this new rule? Companies can file a paper Corporation Tax return only in limited circumstances, such as if they wish to submit it in Welsh or can demonstrate a valid, reasonable excuse to HMRC. Otherwise, returns must be filed online using commercial software. If you are affected by this change and need help choosing and utilising commercial software to complete your Corporation Tax return, please speak to our team.
Capital allowances continue to provide an effective method for businesses to reduce their tax bills, by providing incentives for investment in eligible expenditure – typically plant and machinery. Historically, these reliefs have been subject to change and the 2026/27 tax year is no different, as the Government moves to alter two key reliefs – Writing Down Allowance (WDA) and a new First-Year Allowance (FYA). Reduction of the Writing Down Allowance The WDA will be reduced from 18 per cent to 14 per cent on the main pool of qualifying plant and machinery assets. This change has been introduced on two different dates, starting with companies subject to Corporation Tax on 1 April and followed shortly thereafter by those subject to Income Tax, such as sole traders and partnerships, from 6 April. Businesses with large brought forward main pool expenditures are expected to lose the most from the reduction in the main rate of WDA. In the long-term, the change may also reduce incentives for investment in second-hand assets and cars, which benefited under the previous rules. The new First-Year Allowance To offset some of the impact of the reduction in WDA, a new 40 per cent FYA on main rate expenditure, primarily still covering plant and machinery, will now be available. This new FYA is intended to encourage investment in areas where other FYAs don’t allow, in particular, assets bought by unincorporated businesses and leases. Sole traders and partnerships will, for the first time, be able to get additional support at the point of investment, which means that more businesses will be able to reduce their tax bill in the same year as their investment. This is expected to give a quick cashflow boost to those affected and provide additional support for future investments. However, it is important to note that this FYA does not support investment in second-hand assets, cars or leased assets in other countries. Finally, the Government has also confirmed that small business owners will continue to benefit from tax relief on electric vehicles, as the 100 per cent FYA for zero-emission vehicles and charge points has been extended until 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax. This gives businesses greater certainty when planning ahead, while also providing a strong financial incentive to invest by reducing tax bills upfront. Want to make more of capital allowances? If you think you may be eligible for capital allowances, either due to the changes outlined in this article or more generally, then it is important that you claim the tax relief available to you. If you would like help reviewing the current capital allowances that your business can claim, please get in touch.
Directors and employees claiming work-from-home tax relief will no longer be able to claim it from the start of the new tax year – 6 April 2026. Why is this relief being taken away? The Chancellor announced the removal of the work-from-home relief as part of her latest Autumn Budget. The main reasoning given for the abolition is that it will support the nation’s deficit reduction. HMRC has also said that it no longer believes it is fit for purpose or easy to police. Who could claim work-from-home relief? Work-from-home relief has been utilised by homeworkers since the early 2000s, helping them offset some of the costs of heating, lighting, broadband and other home-office expenses required to complete their jobs. The relief allowed employees and directors to claim a flat rate of £6 per week or a deduction for actual costs. However, those who do not claim the flat fee were required to provide evidence of the exact costs, such as an invoice or bill. Eligibility for the relief only applied to individuals who had no other choice but to work from home. For instance, where the business did not have an office or the daily commute was not feasible. Individuals who simply preferred to work from home did not qualify. Is there any relief still available for home workers? The only remaining tax-free support will be reimbursements made directly by employers. This applies only where the payments relate to demonstrated additional household costs and where the costs are incurred wholly, exclusively and necessarily for employment duties. For anyone still claiming work-from-home relief, it is worth reviewing your position now to understand how this abolishment will impact your take-home pay.