The domestic reverse charge places the responsibility of accounting for VAT onto the customer, not the supplier
The reverse charge applies to both standard rate and reduced rate VAT
- If you are the building or construction supplier: You can use this flowchart from HMRC to decide whether to apply normal VAT rules, or apply the domestic reverse charge.
- If you are the customer receiving building or construction services: You can use this flowchart to check whether normal VAT rules or the domestic reverse charge.
If you’re supplying services, you’ll need to obtain written confirmation from your customer regarding their status
If you are the customer receiving reverse charge VAT invoices, you will need to account for them
This means paying any VAT due direct to HMRC as part of your normal VAT process, rather than paying the VAT on CIS services to your supplier.
What steps do Construction Businesses need to take to prepare?
- Take the time to understand the implication of this new scheme and determine how this affects your business.
- Obtain written confirmation from your customers of their status.
- Ensure your accounting software is up-to-date and is capable of accounting for the reverse charge.
- Review your VAT workings to ensure it is correctly accounted for. HMRC are allowing a 6 month grace period for mistakes made so be sure to correct any errors as soon as possible.
Some businesses may find their VAT returns will often result in a repayment.
- Consider whether switching to monthly VAT returns would benefit your business as this would mean more frequent refunds and could be helpful for cashflow.
If you are interested in reading the full details in HMRC’s in-depth technical guide you can dig deep here. If you have any queries regarding the above, please get in touch and we will be happy to help.