Construction Services VAT Reverse Charge for Sub-contractors

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Construction Services VAT Reverse Charge for Sub-contractors
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I’m a sub-contractor. What does the VAT reverse charge for construction services mean for my business?

Invoicing

  •  Firstly, you will need to consider who you are supplying, so whether the domestic reverse charge applies e.g. whether they are VAT registered, CIS registered, end user (see flowchart).
  • If you are supplying an end user that is VAT registered and CIS registered, you need to receive written confirmation from your customer that they are the end user and charge VAT in the normal way.
  • If your supply does fall within the domestic reverse charge rules you must issue your invoice with no VAT. But you must state the VAT amount or rate that would have been charged, has it been subject to normal rules. You must also state the invoice is subject to the reverse charge rules, i.e. Reverse charge: S55A VATA 94 applies

Bookkeeping

All you need to do is enter the sales invoice in your bookkeeping software with no VAT.  If you are using bookkeeping software such as Xero, QuickBooks etc it is likely special tax code will be set up for these invoices and you should look out for updates provided by your software.

Cashflow

It might also affect your cash flow.  This is because the VAT you previously collected from your customer then passed to HMRC as a payment will no longer be available to your business.

VAT scheme/frequency

  • Flat rate scheme – If you are on this scheme you need to carefully assess if you should come off it as you will be paying VAT over and not charging any – a potentially disastrous impact.
  • Monthly VAT returns – if you will now be in regular receipt of repayments, you can ask HMRC for permission to submit monthly VAT returns, to speed up your repayment.

For full guidance please click here.

Tom McManners
Tom McManners BSc ACA ACMI

Tom is a Chartered Accountant and Senior Statutory Auditor. He is also the Director at Treetops. For more accounting advice please call or complete our website contact form:

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