With the Domestic Reverse Charge VAT now in place, HMRC have produced a list of frequently asked questions. FIS members are reminded to pay particular attention to use of intermediaries such as agencies and payroll companies to understand the implications of VAT associated with their services and credit options that they may have available to mitigate any impact.
Further information, a range of supporting tools to manage necessary communications up and down the supply chain and some suggestions to help mitigate the impact have been made available in the FIS Reverse Charge Toolkit here
VAT is due when a VAT invoice is issued, or payment is received, whichever is earlier. This is known as the tax point.
For invoices issued before 1 March 2021 the normal VAT rules will apply. For invoices issued on or after 1 March 2021 the reverse charge will apply
For authenticated tax receipts or self-billed invoices the tax point is normally the date the supplier receives payment.
No. Reverse charge only applies to VAT and CIS registered businesses. If the services are provided to customers who are not VAT and CIS registered then the normal VAT rules apply.
Normally if any of the services in a supply are subject to the reverse charge all the other services supplied will also be subject to it. However if the reverse charge part of the supply is 5% or less of the value of the whole supply then this can be disregarded and the normal VAT rules can be applied.
Is zero rated work excluded from the supply value when the 5% is calculated?
No. We have tried to avoid making any changes to the zero-rate. The 5% value refers to a de minimis level of a supply that by itself would be subject to the reverse charge but can be ignored given the overall characteristics of the supply. Excluding the zero-rate element would mean calculating a proportion of a proportion of a supply.
Yes. Your invoice should clearly indicate that the reverse charge applies. You can use any of the following wording:
The invoice should clearly state how much VAT is due under the reverse charge but that the VAT is not being included in the amount charged to the customer.
It doesn’t. MTD only changes the way in which business have to submit their VAT returns and how the account for their VAT. This must now be completed digitally. Otherwise MTD has affect on the reverse charge.
Reverse charge supplies can’t be accounted for under the flat rate scheme. Flat Rate Scheme users who receive reverse charge supplies will have to account for the VAT due to HMRC and recover it simultaneously on the same VAT Return. Users of the Flat Rate Scheme will have to consider if it’s still beneficial to them bearing in mind that under the scheme they cannot recover VAT incurred on purchases of materials, overheads etc.
An ‘end user’ is a term used in reverse charge law and needs thought and to be understood. It is a business who will use the building or structure themselves in their own business either as a building to sell, or to rent out, or for their own use, e.g. as offices.
Development and property companies are end users because they will rent or sell what they have commissioned. They deal in assets rather than supply construction services. Another construction business who will add your work to their work and bill everything to a client as construction services is NOT an end user.
For reverse charge purposes end users are businesses that are VAT and CIS registered but who do not make onward supplies of the construction services supplied to them.
Companies may be deemed Intermediary suppliers if they are VAT and CIS registered AND are connected or linked to end users by either:
1. Being part of the same corporate group or
2. by having a relevant interest in the same land where the construction works are taking place.
The reverse charge does not apply to supplies to end users and intermediary suppliers where they tell their supplier in writing that they’re end users or intermediary suppliers.
No. As long as it is in writing. Typically it will probably be in a contract.
If you are a sub-contractor your as your customers will no longer be paying you VAT this will reduce the amount of payments coming into your business. You’ll need to consider and plan for the impact of this on your day-to-day cashflow. You can apply to be moved to monthly VAT returns to speed up any repayments that you are due from HMRC.
In order to apply the reverse charge you need to be sure that CIS applies to the payments made to you, even if there are no deductions due to having gross status. Therefore if they haven’t answered the CIS questions you should charge VAT in the normal way. If it turns out that CIS did apply they will be liable for accounting for the reverse charge not you.
If you ask and provide reasonable opportunity to your client to provide an end user statement and fail to get one, reverse charge. If HMRC find that a customer has failed to notify end user status to their supplier they will require the customer to account for and pay the VAT, exceptionally they may require the customer to contact the supplier and request a corrected invoice.
Further information, a range of supporting tools to manage necessary communications up and down the supply chain and some suggestions to help mitigate the impact have been made available in the FIS Reverse Charge Toolkit here
If you have any additional questions or areas where you are unsure FIS will take these forward to HMRC to seek clarity. Email your questions to FIS via info@thefis.org