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Implementing Reverse Charge VAT

Implementing Reverse Charge VAT

 

What is Reverse Charge VAT

Members need to prepare themselves for the upcoming reverse charge VAT – this is perhaps the biggest change to construction taxation since the launch of the CIS Scheme. The change will see VAT being paid between construction firms ‘reversed charged’ which will have consequences for your cashflow and accounting systems.

Reverse charge VAT will involve some decision making before an invoice is sent to a customer based on the nature of the work done and accounts departments will need to know whether the customer is VAT registered and whether the customer is CIS registered.

JTC has created a flow chart, which is similar to what members will use daily after October 2019.

Think about collecting your customers VAT registration numbers and CIS UTR now for projects that will run over into autumn 2019. If you do not have these details, it is worth getting an End-User Certificate to confirm VAT status an example is below.  Keep an eye on this page as we expect more guidance to become available as we get closer and information is challenged.

Advice on End-User Certificates (FIS Members Only)

Advising your supply chain

It is suggested a letter or email is sent to your VAT registered subcontractors to draw their attention to the coming changes and start them thinking and planning. The more firms that know and understand that there are changes ahead the better. This letter is not just for your subcontractors. Imagine your contractors sending it to you, many contractors will use it or their own form of words.

An example letter is available here. This letter should go to all VAT registered subcontractors who you pay for construction operations, whether paid gross or net being subcontractors whose Unique Tax Reference Number (UTR) you have verified.

Advice from the Joint Taxation Council (available to FIS Members only)

The JTC (which FIS members can access support though their membership) provides guidance on Reverse Charge VAT and has produced an example flowchart to help businesses supplying building and construction services decide whether to apply normal VAT rules or apply the domestic reverse charge.

The Chancellor has reaffirmed the Government’s commitment to Making Tax Digital and advised there would be a light touch approach to penalties in the first year, where business are doing their best to comply, but there will be no light touch for failure to pay.

Make sure to test your own cash flow, and consider whether you ought to ask to become a monthly repayment trader.

More from the JTC here – https://www.thefis.org/membership-hub/memberbenefits/newsline-joint-taxation-committee/

Reverse Charge VAT Workshops

Becoming a Monthly Repayment Trader

Apart from the additional admin, cash flow is the biggest concern. Many companies will be paying out VAT on material and non-construction services, but will not be collecting it on their invoices, so you will be down by the VAT for a quarter.  Worth talking to your accountant and you need to check that you will benefit, but effectively if you move to a situation where the VAT are going to be owing you money, you can consider moving to monthly returns.

To switch to monthly returns you can:

  • Ring the HMRC helpline 0300 200 3700
  • Apply online to change your registration details
  • Fill in form VAT 484 and send it to the address on the form

At our recent workshop it was suggested by our expert advisor that it should be sufficient to advise HMRC that you will be reverting to Monthly VAT from the 1st October and then acting upon this.

Additional Useful Resources

Download the webinar slides – Reverse VAT webinar slides

The recording of the Webinar is available to FIS members. Click here to access the recording

Training notes from our recent workshop on Reverse Charge VAT document updated Jul 19

Reverse charge Letter to subcontractors

Reverse Charge End-user statement

Reverse VAT cash flow modelling tool

Useful Links

A simplified introduction to Reverse Charge VAT and how it relates to the interiors sector was prepared by Haslers for the FIS in the May edition of the SpecFinish magazine (see Page 14-15)

Public guidance has now been released and is available here (updated 7th June 2019).  We urge all members to download a copy and take the time to read it. Companies must not start reverse charging before the start date.

FIS is a member on your behalf of the Joint Taxation Committee and as part of this subscription has a specialist helpline available to members.  To access the helpline call:  0121 707 0077

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