The government has made changes to the VAT scheme for the construction sector which will have a major impact on payments between businesses. We have produced some simple facts to guide you through the changes.

 

What is reverse charge and when is it happening?

The reverse charge is a major change to the way VAT is collected in the building and

and construction industry and comes into effect from 1 October 2020.

After this time, the customer receiving the service will pay the VAT to HMRC instead of paying the supplier.

 

How will it affect me?

The reverse charge will only apply to you as an individual or business registered for VAT in the UK and does not impact on consumers. This will affect you if you supply or receive specified services listed under the CIS regime.

 

What do I need to do to be ‘reverse-charge ready’?

To prepare for the deadline, you need to check to see if the reverse charge will affect your sales, purchases, or both, and if it have an impact on your cashflow.

If appropriate, you need to make sure that your accounting systems and software are updated to deal with the new charge system.

Finally, if you manage your own finances, you need to ensure all you and your staff responsible for VAT accounting are familiar with the reverse charge and how it will operate.

 

What if I am a contractor?

If you’re a contractor you will need to review all your contracts with sub-contractors, to decide if the reverse charge will apply to the services you receive and then notify your suppliers if it does.

 

What sub-contractors need to do

If you’re a sub-contractor you will also need to contact your customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.

 

How will this affect my invoicing?

Under the new rules, if you are a VAT-registered business which supplies certain construction services to another VAT-registered business, you will be required to issue a VAT invoice stating that the service is subject to the reverse charge.

Your customer must then account for the VAT on that supply through its VAT return, instead of paying the VAT to the supplier, and then recover the VAT amount as input tax, subject to the normal rules.

The list of services both affected and excluded from the charge is quite comprehensive, so it is worth taking some time to look through the list on the HMRC website.

For work undertaken for end consumers such as domestic customers or customers who are not VAT registered, you will invoice VAT as normal, as the new rules only apply to supplies to businesses who are not the final user of the building or those who are VAT registered.

 

And VAT returns, what does this mean for me?

As a result of the reverse charge, you may no longer pay VAT on some of your sales. This means that you may be in a VAT repayment position with HMRC, as you have no VAT on sales to declare. You might consider moving your returns to a monthly basis to speed up repayments due from HMRC.This can be done online through your government gateway account or through your accountant.

Clearly this is a complex area and one which you need to get right as the financial implications are huge. If your business is not equipped to deal with the change or you are simply too busy, then this is where experts – like us! – can make all your reverse charge worries fade away.

 

For more information on how we can help you negotiate the changes ahead, get in touch with us today on info@chuhanandsingh.co.uk or 01642 244090, and we’ll go through everything you need to know.