If you are a UK VAT registered company suppling building and construction services you should be aware that you must apply VAT reverse charge to your supplies from 1 March 2021.
What would it mean?
This means that if you are a sub-contractor the customer will no longer be paying you VAT. As a result you will notice that the gross value of the payments coming in your business as sales will be reduced.
This means that if you are supplying construction services to a VAT registered customer you will no longer be accounting for VAT in other words, the supply which is covered by a reverse charge no VAT will be due on the sales .
To whom the changes apply?
To see if the changes apply to you. You should ask yourself the following questions
- Are you a VAT registered business in the UK?
- Do you supply building and construction industry services?
- IS your Customer is also VAT registered in the UK?
- IS the payment of the supply is reported through CIS?
- The services you supply are standard or reduced rated?
If the answer to the above is yes then the changes will apply to you and you will be charging a reverse VAT charge. In addition you shouldn't be an employment business and you should not have a written confirmation from your customer that they are the end user.
What steps do I need to take?
To establish if the reverse charge applies to you ask your customer for their VAT number, CIS and the end user status. Make sure that you are not a employment business because if you are supplying construction workers your business will be treated differently for VAT purposes and reverse VAT will not be charged.
If the conditions are met and you come to a conclusion that the domestic VAT reverse charge will apply to your supplies you should consider changing your invoices because now you will not be charging your customers VAT.
As you, the supplier will be claiming net repayments from HMRC, HMRC recommends that you to move to monthly returns as this will help with the cash flows.
VAT Return
In your VAT return, include the value of the sales when you receive the payment from the customer which will no include the VAT.
VAT on Sales
When the sales are made, under the domestic reverse charge rules, the supplier must not enter any output tax on sales. Only net value of the sales will be added to the box.
VAT on purchases
Under the VAT reverse charge rules , you must enter the VAT charges as an output tax on your VAT return.
Input tax can be reclaimed on the reverse charge purchases.
Its always best to seek a professional advice on this matter. We at Taxaccolega have an expert team of accountants dealing with customers under CIS scheme. We have specialist VAT accountants just call us at 020 8127 0728 and we will be happy to help you.
Source: https://www.gov.uk/guidance/how-to-use-the-vat-reverse-charge-if-you-supply-building-and-construction-services