What is it
From the 1st March 2021, VAT reverse charge for building and construction services comes into effect.
Who is it for
The VAT reporting change will impact those individuals and businesses who are VAT registered and report within the Construction Industry Scheme.
How does it work
Certain services will now require reverse charge VAT to apply. You can find these services as per HMRC's website.
HMRC has also produced some useful flow charts as to when the reverse charge will apply.
Suppliers who invoice for services that fall under the new regime will need to invoice net balances only but must state on their invoices that 'CIS reverse charge applies – Customer to account for Output VAT'.
The Supplier will include its sale in Box 6, but no VAT is included in Box 1.
When the Customer receives the invoice, the Customer will account for reverse charge VAT within their accounting system.
The Customer will include their cost as a reverse charge purchase, and the accounting system will allocate this to Box 7 and Box 4, but also Box 6 and Box 1. The VAT recorded in the return effectively is cancelled out. Therefore the VAT is recorded, but no amount is payable.
What should I do next
- Ensure your accounting system is capable of recording reverse charge VAT correctly within the VAT returns
- Review your customer list and your services to see which customers you will now need to create reverse charge sales invoices for
- Review your suppliers' list and consider who may be sending you reverse charge supplier invoices
- Ensure your accountants or bookkeeper are comfortable with the new rules and will look to process the records correctly
- Watch one of HMRC's live or recorded webinars found here
Critchleys clients: If you have specific questions or require any support or advice, please contact your Critchleys Accountant directly.
First Published 10 February 2021
Last Updated 10 February 2021
10 February 2021
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