VAT Changes for building and construction services- Reverse Charge
VAT is changing within the construction industry and this change comes into effect from 1st October 2019.
VAT Domestic reverse charge for building and construction services is the change which is taking place.
You will be affected by this if you supply or receive specified services that are reported under the Construction Industry scheme (CIS) between VAT registered businesses, and the supply is standard rated or reduced rated for VAT.
If your invoice consists of some CIS and some non-CIS supplies, the whole supply will be subject to the reverse charge.
What is reverse charge?
Reverse charge is in effect moving the VAT amount up to the end user.
VAT registered sub-contractors will be applying the reverse charge on their invoices for CIS
supplies to VAT registered customers and therefore will not be charging the VAT on their invoice, therefore only receiving the net amount. Their customer would then account for both output VAT and input VAT on the invoice on their next VAT return.
This is going to have an impact on cashflow.
Subcontractors would normally receive the VAT element of their invoice from their customer and only pay this amount over to HMRC on their next VAT quarterly return.
Contractors will now only be paying the net amount to their sub-contractors, thereby enhancing their cashflow. Previously this VAT element was being paid out when making the payment, yet could only be reclaimed on the next VAT return. It will now be netted off on the next VAT return, and there will be no net impact on the overall VAT bill.
What you need to do to be ready for the start of the domestic reverse charge
You need to prepare for the 1 October 2019 introduction date by:
What contractors need to do
What sub-contractors need to do
You will need to contact your customers to obtain confirmation from them if reverse charge will apply, and confirmation of their VAT registration details. You will also need to obtain confirmation if the customer is the end user or intermediary supplier.
What changes will need to be made on Sales invoices?
Invoices will need to clearly state that the reverse charge applies using the correct and approved terminology. HMRC Suggests to businesses to use any of the following:
It should be clear on the invoice that the reverse charge mechanism has been applied and it should show all the usual information required for a VAT invoice.
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