Welcome to another blog from RSS Bookkeeping & Accounts Ltd! Bit of a slog this one, regarding the Domestic Reverse Charge in construction – there’s some really important information in here so try and stick it out! OK, here we go…
HMRC apply the domestic reverse charge to help them combat VAT fraud in the following sectors:
- Mobile phones
- Computer chips
- Wholesale gas
- Wholesale electricity
- Emissions allowance
- Wholesale telecoms services; and
- Construction services (with effect from 1 March 2021, the start date has been postponed due to the covid-19 crisis).
There has been a lot of chitter chatter lately surrounding the Domestic Reverse Charge in the construction industry, mainly because these are new changes coming into the sector from March 2021. This is what we’ll be concentrating on here today but feel free to get in touch if have queries surrounding the other sectors.
When does the Reverse Charge get applied?
Where affected goods and services are supplied, the domestic reverse charge applies if:
- The customer is UK VAT registered and purchasing the goods/services for business purposes (there are additional conditions when construction services are supplied); and
- The supplies are not for final consumption.
The Reverse Charge doesn’t apply to margin scheme supplies, cross border transactions or goods and services given away for no consideration.
So, if the domestic reverse charge does apply the supplier must:
- Issue invoices which clearly identify the supplies to which the reverse charge applies and include:
- A legend confirming that the reverse charge applies, e.g ‘reverse charge: customer to pay VAT to HMRC’;
- The amount of VAT due under the reverse charge. If quoting the VAT amount payable by the customer is impractical, a legend explaining that the customer should self account for VAT at the standard rate based upon the VAT-exclusive selling price is also acceptable.
- Include the value of the sale in Box 6 of their VAT return (but no sales VAT in Box 1 as this is paid by the customer).
What about my VAT Return, how do I fill it in?
When the Domestic Reverse Charge applies, you should:
- Declare output tax on the goods/services via Box 1 of their return; and
- May recover the VAT paid on the goods/services in Box 1 of the return as input tax in Box 4, (subject to the normal rules, e.g partial exemption etc) (and include the value of the purchase in Box 7).
As you can see, this will have a net zero effect on the return.
Originally, the Domestic Reverse was due to come in to effect for the construction industry on 1 October 2019, but HMRC postponed this to 1 October 2020. Then, a second postponement to 1 March 2021 was announced on 5 June 2020.
The domestic reverse charge will apply to standard and reduced rated construction services if the following conditions apply:
- The services are within the scope of the construction industry scheme (CIS);
- The customer is VAT registered;
- The payment will be reported under the CIS;
- The customer is not an end-user (an end-user is someone who receives supplies of construction services but does not supply them on).
‘Construction services’ includes the construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations.
HMRC have published a detailed guidance note which sets out the rules regarding the domestic reverse charge for construction services, this is available here:
If you made it this far…well done, and please feel free to get in touch if you would like any further information regarding this matter.
If you want to get in touch about how we might be able to help you, please don’t hesitate to contact us on email@example.com, or call 07413 101144.