{"id":33939,"date":"2021-02-25T09:29:27","date_gmt":"2021-02-25T09:29:27","guid":{"rendered":"https:\/\/www.okappy.com\/?p=33939"},"modified":"2021-03-11T09:07:58","modified_gmt":"2021-03-11T09:07:58","slug":"5-things-you-should-know-about-the-reverse-vat-charge","status":"publish","type":"post","link":"https:\/\/www.okappy.com\/5-things-you-should-know-about-the-reverse-vat-charge\/","title":{"rendered":"5 Things You Should Know About the VAT Reverse Charge"},"content":{"rendered":"
From 1st March 2021, if you supply goods and services to the construction sector, then you will need to implement VAT reverse charging on your invoices<\/p>\n
Find out everything you need to know about the domestic reverse charge for supplies of building and construction services.<\/p>\n
Reverse charge is the amount of VAT you would have paid on a service if bought in the UK. You have to add that amount to the total of VAT you are going to pay to HMRC that quarter, but also to the amount of VAT you are going to reclaim in that quarter.<\/p>\n
Domestic VAT reverse charge legislation (DRC) is a change in the way Construction Industry Scheme (CIS) registered construction businesses handle and pay VAT. It is being introduced in the UK on 1 March 2021, having previously been delayed from October 2019.<\/p>\n
It affects VAT registered construction businesses who supply or receive construction and building services that are reported under the CIS. It means the customer (contractor) will be responsible for the VAT due to HMRC instead of the supplier (subcontractor). That means that it is likely to affect your business in some shape or form.<\/p>\n
Some sub-contractors claim VAT and never pay it.\u00a0 By moving the VAT charge down the supply chain, HMRC intends to make this kind of fraud impossible. Sub-contractors will require the contractor employing them to handle and pay the VAT directly to HMRC.<\/p>\n
The VAT reverse charge must be used for most<\/i> supplies of building and construction services from the 1st of March 2021. Specifically, this means it must be applied if the tax point is on or after 1st of march 2021. It applies only to VAT-registered businesses who are supplying\/receiving services that are reported under CIS.<\/p>\n
Specific guidance on which services are subject to the reverse charge, can be found here<\/a>. There are also flowcharts available to help you work it out.<\/p>\n The reverse charge will need to be used for suppliers\u00a0 when:<\/p>\n See the Supplier’s flowchart here<\/a> and how to use the VAT Reverse charge if you\u2019re a supplier here<\/a>.<\/p>\n The reverse charge will need to be used for buyers when:<\/p>\n See the Buyer’s flowchart here<\/a> and how to use the VAT Reverse charge if you\u2019re a buyer here<\/a>.<\/p>\n The changes might be bad for cashflow, because you won’t be able to use VAT received from sales to help with liquidity.<\/p>\n Also, because you no longer pay VAT on your sales, you might become a ‘repayment trader’ – which is a business whose VAT return means claiming money from HMRC, rather than making a payment.<\/p>\n HMRC suggests that such businesses apply to move to monthly returns, to speed up payments received from HMRC and therefore benefit cash flow.<\/p>\n The changes might be good for cash flow, because the VAT you previously had to pay to contractors is now paid in your VAT return. But make sure the invoices you receive are correct, so your VAT return is correct!<\/p>\n The VAT reverse charge applies to services and the materials used in those services<\/i>. It does not apply to materials supplies independently of a service.<\/p>\n Invoices should clearly indicate the reverse charge applies using the correct terminology. HMRC provides this invoice example.<\/a><\/p>\n With Okappy you can set whether an invoice item is a VAT reverse charge item and set which customer VAT reverse charges will apply to. Then when you raise an invoice with the relevant line item and customer, your invoice will be calculated using the VAT reverse charge.<\/p>\n If so, the invoice will show<\/p>\n For more information on how to set up a customer and line item for VAT reverse charge, see this help and support article<\/a>.<\/p>\n VAT reverse charges do not contribute to a company\u2019s potential VAT threshold. So if you aren\u2019t registered for VAT then any attempt to apply the reverse charge will not push you over the limit.<\/p>\n If you’re invoicing for mixed supplies, some of which require a VAT reverse charge, you should apply the VAT reverse charge for the whole invoice.<\/p>\nSupplying<\/h3>\n
\n
Buying<\/h3>\n
\n
3) It may affect your cash flow<\/h2>\n
Sub-contractors<\/h3>\n
Contractors<\/h3>\n
4) It applies to materials, if they\u2019re paid for as part of a service<\/h2>\n
5) Your invoices will need to use new terminology<\/h2>\n
How it works at Okappy<\/h2>\n
\n
Extra information<\/h2>\n