“Industry representatives have raised concerns that some businesses, in the construction sector, are not ready to implement the VAT domestic reverse charge for building and construction on 1st October 2019”.
The decision follows lobbyists raising concerns about Brexit uncertainty, and contractor businesses requiring a longer lead-in time to enable them to prepare for potential cash-flow and financial administrative impacts.
The requested six-month postponement has effectively been doubled by the government, to enable businesses to adapt their accounting systems. Specifically for dealing with the VAT changes to ensure there shouldn’t be a negative impact on cash-flows, as those businesses will no longer get VAT payments from customers for services where the reverse charge applies.
HMRC remains committed to the introduction of the reverse charge and will focus the additional time resource on tackling fraud in the sector, but also to raise sector awareness and provision of additional guidance to ensure businesses are ready for the new implementation date.
Domestic reverse charge – who’s affected?
Firstly lets clarify in simple terms what the main change of reverse charge is and whom it applies to:
The customer receiving the service pays the VAT to HMRC and not the supplier
It only applies to individuals or businesses registered for VAT in the UK – not consumers
A subcontractor invoices us for 10K + 2k VAT. We the main contractor pay them 12K, and the subcontractorpays the VAT to HMRC, which we can claim back.
Subcontractorinvoices us 10K, and we pay 10K, and also 2K to HMRC, on behalf of the subcontractor. (i.e. this is seen as part of our output tax)
We invoice our (not the end user) customer, for 15K, plus VAT. The customer pays us 15K, and we pay 3K to HMRC
We invoice the customer for 15K, they pay 15K to us, and they pay 3K to HMRC.
We invoice the end user customer for 15K, and they pay us 15K, and we pay 3K to HMRC
We invoice the end user customer for 15K, and they pay us 15K, and we pay 3K to HMRC: no change
Domestic reverse charge – implications on Dynamics 365
As expected the new approach will have an impact on VAT processing, both sales and purchase, and also sales documentation. So it’s important that firstly you clarify the position you’re in, check:
If your customer is an end user or not – ask them and record their answer.E.g. “We are an end user for the purposes of S55A VAT Act 1994 reverse charge for building and construction services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge.”
If you’re a contractor you’ll also need to review all your contracts with sub-contractors – decide if the reverse charge will apply to the services you receive under your contracts. You’ll need to notify your suppliers if it will.
If you regularly deal with end users then you may wish to incorporate a statement into your standard terms of business.E.g. “We will assume you are an end user unless you contact us to confirm you are not.“
Once you’ve clarified your position, then we’ll be able to advise on the required solution amendments. For more information on what will need addressing and how we can help, please contact Customer Services (0345 467 9950) or your Account Manager.
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