When is the VAT tax point with construction services?

When is the VAT tax point with construction...

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A company operating in the construction sector carries out work as subcontractors for main contractors.

The sales scenario is:

  1. Work is done
  2. At end of month an Application for Payment is sometimes issued (but often thsi stage is skipped). This isn't an invvoice.
  3. About midway through the month following the month the work was undertaken, the main contractors' Quantity Surveyors certificate the amount of work deemed to have been done.
  4. At the end of the month (or beginning of the following month) the main contractor pays for the work.

When is the tax point for normal VAT accounting (not cash accounting) please?

Secondly, when is the tax point for retentions that aren't paid for a further year or more?

Thanks for advice.

Replies (4)

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By ShirleyM
27th Sep 2012 10:48

In my experience

Contractors usually use self-billing, so the tax date will be the date of the self-billed invoice.

Retentions work along the same lines. An application for payment of the retention is made, and the contractor will self-bill.

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Man of Kent
By Kent accountant
27th Sep 2012 10:54

Payment date = Tax point

This is the (construction) industry standard where applications for payment are submitted rather than invoices.

As retentions are normally deducted from the value of the gross application prior to certification and payment, the tax point for these is the payment date/date payment is due* (12/24 months after practical completion of the works).

 

* If your client is working under a standard form contract NEC, JCT etc payment due date will be covered.

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By DavidMiller
27th Sep 2012 11:22

Tax Points

Although the usual tax point rules are that a basic tax point arises when the work is completed, special rules apply for the construction industry in that if periodic payments are due the tax point is the earlier of date of any payment of date the supplier raises an invoice.

Given that both payment and a (self-billed) invoice are usually forthcoming once the QS has certified he amount due the tax point will likely be 4.

 

For retentions, the tax point will again be either when a payment is received or invoice raised so ideally the client shouldnt raise an invoice until payment is made as no VAT would be due until the retention is paid. If they do because the contractor for example self-bills then VAT will be due then.

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By newmoon
27th Sep 2012 13:55

Excellent

Three excellent answers, thank you.

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