A MAJOR CHANGE TO THE WAY VAT APPLIES TO THE CONSTRUCTION INDUSTRY IS JUST THREE MONTHS AWAY. WILL YOU BE AFFECTED AND HOW SHOULD YOU PREPARE FOR IT?
REVERSE CHARGE
From 1st March 2021 a reverse charge for VAT will apply to building and construction services. It will affect you if your business makes or receives supplies which are covered by HMRC’s construction industry scheme (CIS) and you are registered for VAT.
HOW WILL IT WORK?
In simple terms the reverse charge means that when, on or after 1st March 2021, you bill a customer for services to which the CIS applies you must not charge VAT. The other side of the coin is that when you receive supplies of CIS services you must account for VAT (charge yourself VAT) at the appropriate rate (standard 20% or the lower 5% rate) and on the same return reclaim the VAT if entitled to according to the usual rules.
MODIFYING VAT RECORDS
You will need to change the settings in your bookkeeping and invoicing software to account for and report the reverse charge correctly on your VAT returns so that:
- where you’re the supplier, no entry in Box 1 (VAT on sales etc.) is made for CIS goods or services, but the value of such sales is included in Box 6
- where you are the customer you must enter in Box 1 the VAT on purchases subject to the reverse charge. Do not enter the value of the purchases in Box 6. Also, include the amount of reverse charge VAT you’re entitled to reclaim in Box 4
- if you use invoicing software make changes to ensure that VAT isn’t added for supplies where the reverse charge applies.
WE CAN HELP
It is essential to prepare your business in advance of these changes. VAT is a complex area of tax and in this article, we have only been able to touch on some of the issues involved with the changes. If you think you are likely to be affected by these changes, Contact us. we can work with you to ensure you are well prepared for the new system.
ALL THIS AND MORE
We offer all the above as part of our full Tax Services and Accounting and can also help you with Capital Gains Tax, Inheritance Tax, Retirement Planning, even filling out your Self-Assessment Tax Returns for you.
