How the VAT reverse charge will affect your business?

Published by Sandra Smith on

How the VAT reverse charge will affect your business?

HMRC launched their new VAT reverse charge scheme in March 2021, it applied to all CIS registered businesses buying and selling construction services. It is a complex system which will affect your sales invoices and VAT returns.

The VAT reverse charge will not change the VAT liability but will simply change the way VAT is accounted for. The recipient of the relevant building and construction services, not the supplier, will now account for the VAT. It will apply to all VAT registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS).

How does the new VAT reverse charge work?

If a property developer contracts a building company to build some flats, they will not be making any onward supply of the building services so normal VAT rules will apply between the developer and the building company.

However, if a sub-contractor makes a supply of services to a customer or another contractor who then makes an onward supply of the same services to an end-customer then the VAT reverse charge will apply.

Depending on your position in the supply chain will affect how the VAT reverse charge will work for you. If you are invoicing a customer or contractor in a supply chain, you need to confirm with your customer if they are the end user. If they are the end user, then nothing changes and you invoice as normal. If they confirm that they are not the end user, you will need to account for the VAT reverse charge.

Get in  touch with the friendly Clear Vision Financial Management team to find out how we can help you with your accounting needs. You can call us on 01794 330025 or email us.