There are special VAT reverse charge rules in place for certain building contractors and sub-contractors. These regulations, which came into effect on 1 March 2021, make the supply of most construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge only applies to supplies of specified construction services provided to other businesses within the construction sector.

If you are VAT registered in the UK and supply services to the building and construction industry, you must use the VAT reverse charge if the following conditions are met:

• Your customer is registered for VAT in the UK.
• Payment for the supply is reported under the Construction Industry Scheme (CIS).
• The services you provide are standard or reduced-rated for VAT.
• You are not an employment business supplying staff or workers, or both.
• Your customer has not provided written confirmation that they are an end user or intermediary supplier.

When these rules apply, sub-contractors do not add VAT to their supplies for most building customers. Instead, contractors are responsible for paying the deemed output VAT on behalf of their registered sub-subcontractor suppliers. And note, contractors can then reclaim the same amount of VAT as input tax on their VAT return, subject to the usual rules. In effect, contractors are paying their subcontractors' VAT to HMRC and then claiming it back on the same VAT return.

It is important for businesses to understand and comply with these rules in order to avoid potential penalties from HMRC.

Chancellor Rachel Reeves has recently introduced a series of new measures aimed at advancing the priorities of the new government. The key announcements include:

• New funding for breakfast clubs at 750 schools with primary-aged pupils.
• The publication of a new Industrial Strategy in the spring.
• A reversal of the decision to write off over £640 million in Covid PPE contracts.
• HMRC will consult on the implementation of e-invoicing for businesses and government departments.

Further details are as follows:

School Breakfast Club Pilot

The Chancellor announced a £7 million breakfast club pilot that will invite up to 750 schools with primary-aged pupils to participate. This funding will allow these schools to provide free breakfast clubs for their students during the summer term (April-July 2025). The initiative aims to reduce the number of hungry children starting the school day, ensuring they are ready to learn.

Covid Corruption Commissioner

The Chancellor declared that no Covid-era PPE contracts will be abandoned or waived until they have been reviewed by the new Covid Corruption Commissioner, who will be appointed in October. This decision affects £647 million in Covid PPE contracts that were previously set to be waived.

Industrial Strategy

The Chancellor emphasized that the Industrial Strategy will be central to the government’s mission to stimulate economic growth, unlock investment, and improve prosperity across the country. A green paper is expected to be published shortly outlining the long-term sectoral growth and priority industries of the government

HMRC Package

Chancellor Reeves also detailed a package of reforms aimed at enhancing the UK’s tax system to strengthen the foundations of the economy. As part of this initiative, HMRC will launch a consultation on e-invoicing to encourage its broader adoption among UK businesses and government departments. Additionally, a new Digital Transformation Roadmap is expected to be published in Spring 2025, outlining HMRC’s vision to become a digital first organisation.

While there have been no specific announcements regarding changes to Business Asset Disposal Relief (BADR), the Chancellor may consider modifying this relief in the upcoming Budget. If you are contemplating selling your business soon, we can assist you in evaluating your options.

BADR currently applies to the sale of a business, shares in a trading company, or an individual's interest in a trading partnership. When this relief is available, a Capital Gains Tax (CGT) rate of 10% applies instead of the standard rate, potentially resulting in significant CGT savings for those looking to exit their business.

To qualify for this relief, several conditions must be met. Currently, individuals can claim a total of £1 million in BADR over their lifetime. This £1 million lifetime limit allows for multiple claims for the relief. Additionally, the lifetime limit may be increased if assets were sold before 11 March 2020.

The government has unveiled new measures to support small businesses and the self-employed by tackling the scourge of late payments, which according to the Smart Data Foundry is costing SMEs £22,000 a year on average and according to FSB research, leads to 50,000 business closures a year.

The government will consult on tough new laws which will hold larger firms to account and get cash flowing back into businesses – helping deliver our mission to grow the economy.

In addition, new legislation being brought in the coming weeks will require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity in their annual reports about how they treat small firms. This will mean company boards and international investors will be able to see how firms are operating.

Enforcement will also be stepped up on the existing late payment performance reporting regulations which require large companies to report their payment performance twice yearly on GOV.UK.

Under current laws, responsible directors at non-compliant companies who don’t report their payment practices could face criminal prosecutions including potentially unlimited fines and criminal records.

The consultation which will be launched in the coming months, will also consider a range of further policy measures that could help address poor payment practices.

Research shows that every quarter in 2022, 52% of SMEs small firms in the UK suffer from late payments, meaning roughly 2.8 million small firms face this issue, with the Federation of Small Businesses describing it as one of the biggest problems facing SMEs.

Late payments are just one element of the problem, with some SMEs forced to wait months for contracts to be fulfilled and some are even forced to take out loans against their own homes to manage cash flow.

Cracking down on late payments will unlock growth for 5.5 million small firms by enabling them to invest their time hiring more employees, boosting wages, and exporting around the world, rather than chasing down late payments.

The Business Secretary will hold a joint call with the Federation of Small Businesses later today to outline to SME leaders the work the Department will undertake to put in place tough new laws to end bad payment culture. New proposals, subject to consultation, will be bought forward on audit and audit committees, in order to help rebuild small businesses’ trust that they will be paid on time.

A reminder that the government has stated that it will remove preferential tax treatment based on domicile status for all new foreign income and gains (FIG) that arise from 6 April 2025. To replace the present remittance basis of tax, the government will introduce an internationally competitive residence-based regime, providing 100% relief on FIG for new arrivals to the UK in their first four years of tax residence, this is provided that they have not been UK tax resident in any of the 10 consecutive years prior to their arrival.

From 6 April 2025, the protection from tax on income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the 4-year FIG regime.

The government intends to conduct a review of offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation, to modernise the rules and ensure they are fit for purpose. The intention for this review will be to remove ambiguity and uncertainty in the legislation, make the rules simpler to apply in practice and ensure these anti-avoidance provisions are effective. Further details on the review will be provided in due course. It is not anticipated that this review will result in any changes before the start of the 2026-27 tax year.

A form of Overseas Workday Relief (OWR) will be retained. Government officials will engage with stakeholders on the design principles for this tax relief and further details are expected to be confirmed in the Budget later this month.