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Domestic Vat Reverse Charge for the Construction Industry
- 2. Who must use the reverse charge from 01 03 2021 • If you are VAT registered in the U.K. and supply or buy building and construction industry services and • Your Customer is registered for VAT in the U.K. • The payments are within a scope of the Construction Industry Scheme (CIS) • The services/supplies are standard or reduced rated • Your Customer is not an end user/intermediary supplier • You are not the end user/intermediary supplier
- 3. Who is and end user? • The end user/intermediary is the final customer. They are businesses or groups, who are VAT registered and operate under the CIS Scheme, but they don’t make any onward supplies of the services which were supplied to them. • You should expect a letter from an end user that confirms in writing that they are an end user. • Example of wording: ‘We are an end user for the purposes of section 55A VAT Act 1994 reverse charge for building and construction services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge.’ • Without a written confirmation, the supplier must assume that the Reverse charge applies and will not charge VAT to the Customer
- 4. When you should check your customer? • If the customer is a domestic consumer – there is no need to check the VAT and CIS – as the normal VAT rules should apply. • If there is any doubt – ask your customer whether they are registered for VAT and CIS and if they are an end user. • You can also include in your agreement that you assume that your customer is an end user (if you often deal with that customer) unless they say they are not.
- 5. Who and what is not subject to Domestic Reverse charge? • Employment businesses supplying construction workers are not subject to reverse charge. • The professional work such us architects, surveyors and external consultants • Drilling an oil or extracting gas and minerals • Installing seating, blinds and shutters • Installing security systems, including burglar alarms For the whole list of excluded supplies please visit https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction- services#when-you-must-not-use-the-reverse-charge
- 6. 5% disregard - Reverse charge and normal VAT charging? • If any of the services are subject to reverse charge, all other services supplied will also be subject to reverse charge, however: • If the reverse part of the supply is only 5% of the whole supply then the normal VAT rules can apply, but: • Supply and fix works will always be subject to the reverse charge, even if the installation is only a small part.
- 7. Accounting treatment of domestic reverse charge • Invoice issued before 01 March 2021 and payment date before 31 05 2021 – the normal VAT rules apply • Invoice issued before 01 March 2021 and payment date will be on or after 01 June 2021 – domestic reverse charge applies • On or after 01 March 2021 – the domestic reverse charge applies • VAT is always due when a VAT invoice is issued or payment received – whichever is the earlier.
- 8. Accounting treatment of reverse charge • Under the VAT reverse charge – suppliers do not enter VAT on sale in Box 1 of the VAT return. Only the net sale is entered. • If you buy services subject to reverse charge you will enter the value of VAT charged in Box 1(output tax) and reclaim the input tax in box 4, subject to the normal VAT rules. • You cannot use the VAT Cash Accounting Scheme nor Flat Rate Scheme for services subject to domestic reverse charge
- 9. Invoices and other documents • Suppliers must use all the information required for the VAT invoice plus state clearly that the domestic charge applies and that it is the customer who must account for the VAT. • “Customer to account to HMRC for the reverse charge output tax on the VAT exclusive price of items marked ‘reverse charge’ at the relevant VAT rate as shown above” • On credit note: reverse charge: customer to account for the output tax adjustment of £X to HMRC
- 10. What you must do now • As a contractor • Review all your contracts with sub-contractors • Decide if the reverse charge will apply • As a subcontractor • Contact your customer to confirm if the reverse charge will apply • Confirm if the customer is an end user • Both • Make sure that your accounting system is ready for the reverse charge • Train your staff • Consider the impact of the reverse charge on your cash flow
- 11. When domestic reverse charge applies
- 12. For more information contact us today on 01706 550 825 Or e-mail us at [email protected] Thank you Catherine Machalinski ACMA