Help with domestic reverse charge

alimvpc

Hi all,

I really need some help with understanding the domestic reverse charge for the construction industry. I do the bookkeepping and accounts for a sole trader's painting and decorating business who is VAT registered and on the CIS scheme. Most of the time I am invoicing individual customers for work completed on their own properties so obviously not VAT registered, but sometimes I will invoice businesses who may be VAT registered. I also invoice as a sub-contractor for one contractor who deducts the CIS element off the labour.

So my question is, in simple terms, what exactly is the domestic reverse charge in plain English and how will it affect how I do the invoicing and accounts for this sole trader? I know this comes into force on 1 October so I'm trying to get prepared and ready for it now but everything I read online just makes me more confused!

Thanks in advance.

douglasstroud

It is basically taking away the need for sub-contractors to charge and then pay on the VAT to HMRC for payments they receive from Contractors unless they are the end client
Using the examples you have included
Your client will continue to charge VAT at the appropriate rate to private homeowners
Your client will continue to charge VAT at the appropriate rate to business owners whether VAT registered or not as they are the end clients
Your client will reverse charge VAT to Contractors unless they are the end client in which case they will need to charge VAT at the appropriate rate

ncacat

• Rather than the supplier charging and accounting for the VAT, it is the recipient of those supplies who accounts for the VAT.
  
• The domestic reverse charge only applies on specified supplies of construction services between businesses and not supplies made to end consumers.
  
• Specified construction services are determined based on the definition of ‘construction operations’ used in the Construction Industry Scheme (CIS)
  
• The new rules only capture supplies between construction businesses and therefore purchasers of construction services that are not making an onward supply of construction services are unaffected
  
• The normal VAT rules will apply where a scenario is excluded from the new rules.
  

The mechanism:

Where a VAT-registered business receives a supply of specified services (which are not excepted supplies) from another VAT-registered business on or after 1 October 2019, it accounts for that VAT amount through its VAT return instead of paying the VAT amount to its supplier. It will be able to reclaim that VAT amount as input tax, subject to the normal rules. The supplier will need to issue a VAT invoice that indicates the supplies are subject to the reverse charge.

I presume the invoicing software can handle it. If you are raising invoices manually, it would have to mention that the supplies are subject to reverse charge and you can raise for net amount for your affected clients.

https://www.gov.uk/government/publications/vat-reverse-charge-for-building-and-construction-services/vat-reverse-charge-for-building-and-construction-services#detailed-proposal

ncacat

Do they charge VAT or apply the DRC? The answer seems to lie in customers having to inform suppliers whether or not they are an end user and therefore whether VAT should be charged in the normal way instead of being reverse charged.

Found this. Very helpful article.

https://www.accountingweb.co.uk/community/industry-insights/beware-the-domestic-reverse-charge

alimvpc

Thank you all - that is really helpful. I still have a few things I need to get my head around with it but I think I'm a bit clearer now! Many thanks.

PhilHallAAT

On Friday 6 September 2019 the Government confirmed that the introduction of the domestic VAT reverse charge for construction services will be delayed for a period of 12 months until 1 October 2020.

The VAT reverse charge makes the payment of VAT the responsibility of the customer rather than the supplier, which is an enormous change to the system.

Given the magnitude of the change, the short notice and the general lack of awareness as to what this means in practice, AAT backed the National Federation of Builders and Federation of Master Builders in calling for a delay to its implementation. AAT is therefore very pleased that the Government has taken on board these concerns and agreed to a one-year delay.

Full details about the VAT Reverse Charge and this delay are available from HMRC here.