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Domestic Reverse Charge for the Construction Industry

After several delays, the Government has now formally announced that the domestic reverse charge rules for the building and construction industry will be introduced effective from the 1st March 2021.

You are recommended to read this synopsis and to use the following link as a reference guide, particularly for the helpful Flow Charts that appear in Section 25.

www.gov.uk/guidance/vat-reverse-charge-technical-guide

 

  1. Is My Business Affected By The New Regulations?
  • You must use the reverse charge if you are either:

 

  • VAT registered in the UK, supply building and construction industry services and:
  • your customer is registered for VAT in the UK
  • payment for the supply is reported within the Construction Industry Scheme (CIS)
  • the services you supply are standard or reduced rated
  • you are not an employment business supplying either staff or workers, or both
  • your customer has not given written confirmation that they are an end user or intermediary supplier

 

  • if you are VAT registered in the UK, buy building and construction industry services and:
  • payment for the supply is reported within the Construction Industry Scheme (CIS)
  • the supply is standard or reduced rated
  • are not hiring either staff or workers, or both
  • you’re not using the end user or intermediaryexclusions

 

  1. What Services Are Covered By The Reverse Charge?
  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services;
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure;
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
  • painting or decorating the inside or the external surfaces of any building or structure;
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

 

  1. How Do I Account For The Reverse Charge?
  •  VAT is due when a VAT invoice is issued, or payment is received, whichever is earlier.

 

  • For invoices issued for specified supplies that become liable to the reverse charge, the VAT treatment for invoices with a tax point:
    • before 1 March 2021 – the normal VAT rules will apply and you should charge VAT at the appropriate rate on your supplies;
    • on or after 1 March 2021 – the domestic reverse charge will apply

 

  1. How Are Transitional Supplies To Be Handled? 
  • For authenticated tax receipts or self-billed invoices the tax point is normally the date the supplier receives payment.
  • The transitional arrangements for how to determine the VAT treatment for payments due on any supplies entered into your accounting system is if the date entered is:
    • before 1 March 2021 and the payment date will be on or before 31 May 2021, use the normal VAT rules
    • before 1 March 2021 and the payment date will be on or after 1 June 2021, use the domestic reverse charge
    • on or after 1 March 2021, you must use the domestic reverse charge

 

  1. How Do I Complete My VAT Return? 
  • VAT on sales
    • Suppliers must not enter any output tax on sales under the reverse charge.
    • The supplier only needs to enter the net value of the sale.

 

  • VAT on purchases
    • If you buy services subject to the reverse charge, you must enter the VAT charged as output tax on your VAT return.
    • You must make sure you do not enter the net value of the purchase as a net sale.
    • You may reclaim the input tax on your reverse charge purchases, subject to the normal VAT rules.

 

  1. Potential Impacts Upon Cashflow – And How You Can React? 
  • The reverse charge may mean your business will make net repayment claims to HMRC, as you no longer receive VAT on your sales.
  • You can apply to move to monthly returns using your online VAT account;
  • If you are a sub-contractor you should also be aware that your customers will no longer be paying you VAT, which will reduce the gross value of payments coming into your business.

 

  1. These Changes Are Challenging – Will I Be Fined If I Get It Wrong? 
  • HMRC has stated that implementing the reverse charge may cause some difficulties and have indicated that they will apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith;
  • Any errors should be corrected as soon as possible, as the longer under declared or over charged sums remain outstanding the more difficult it may be to correct or recover them.
  • HMRC officers may assess for errors during the light touch period, but penalties will only be considered if you are deliberately taking advantage of the measure by not accounting for it correctly.

 

  1. Still Confused Or In Need Of Help? 

Please contact Jo Travis on jot@barrons-bds.com

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Reminder of new VAT online filing rules

HM Revenue and Customs (HMRC) has reminded businesses of changes to the rules on VAT which mean that many must now file returns and make payments online.

Under the new rules, existing VAT-registered businesses with annual turnovers of £100,000 or more (excluding VAT), and any businesses which registered for VAT from 1 April 2010, must now file their VAT returns online and make their VAT payments electronically.

Since most businesses submit their returns on a quarterly basis, firms are being reminded that the first tranche of returns affected by the new rules cover the period from April to June 2010.

That means returns must be filed online by 7 August.

Stephen Banyard, the director of HMRC’s business customer unit, said: “The vast majority of customers affected by the new arrangements have already enrolled for HMRC’s VAT Online service, and many have also filed their first returns online.

“However, if you’re a VAT-registered trader who’s affected by these changes and you haven’t yet signed up, you need to take action now.”

Businesses that need to register the VAT online service should go to the HMRC website – www.online.hmrc.gov.uk/registration.htm – and follow the instructions there.

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