BEFORE


WHAT ACTION CAN YOU TAKE?


Claim from HMRC £200


£200 A A £1,000 £1,000 £1,200 £1,200 B AFTER B


guidance is that the supply will come within the scope of the domestic reverse charge and no VAT is charged. However, on occasions it will be clear to the contractor that its customer is an end user and should be charged VAT but the customer has not given confirmation. In these cases, HMRC’s guidance says that it will be acceptable to charge VAT in the normal way. In addition to confirming if your


customer is an end user, you also need them to confirm their VAT and CIS status and provide their VAT number. We recommend that this is confirmed in the contract before any invoices need to be raised. In cases where goods and building materials are provided together with construction services and in the course of the construction work, then the reverse charge will also apply to these goods. There are likely to be cases where it is difficult to determine if there is a separate supply of goods that is excluded from the reverse charge, or whether they are to be included as part of a single supply of construction


Accounts for £200 on VAT returns


Recovers £200 on VAT return


Business A invoices Business B £1,000 for work undertaken. Business B pays Business A £1,000. Business B accounts for VAT on the work undertaken on its VAT return and recovers same amount as input VAT.


services. In these cases, a business will need to consider the position further to ensure the correct VAT treatment.


Invoices Invoices for services subject to the domestic reverse charge must include all the information required on a normal VAT invoice. However, they must make it clear that the domestic reverse charge applies and that the customer has to account for the VAT. There is no specific wording but HMRC gives examples including: ●●Reverse charge: VAT Act 1994 Section 55A applies ●●Reverse charge: S55 VATA 94 applies ●●Reverse charge: Customer to pay VAT to HMRC.


Where customers issue self-billing


invoices or authenticated tax receipts, HMRC’s recommended wording is: ●●Reverse charge: We will account for and pay the output tax due to HMRC ● ●Reverse charge: As the customer we will pay the VAT due to HMRC.


Impact on construction businesses Construction businesses will need to ensure that their accounting systems are capable of processing reverse charge supplies and make ongoing checks to ensure that supplies and purchases are correctly treated. As the VAT amount must still be


shown on invoices subject to the domestic reverse charge, the risk that suppliers will account for the VAT to HMRC in error and customers will recover it from HMRC is clear. Subcontractors who rely on VAT collected from their customers as working capital until they have to remit it to HMRC are likely to suffer from the loss of cash flow under the updated regulations. These businesses and even their


customers will need to consider if payment terms should be revisited to avoid problems in the supply chain. Subcontractors will also need to confirm that they are working for a VAT-registered business and whether they are working for an end user, or for someone connected to an end user, including landlords and tenants.


i


For more information, please email pauline. davidson@bdo.co.uk or call 0141 249 5277.


CABLEtalk AUGUST/SEPTEMBER 2019 29 £200


Claim from HMRC £200


Business A invoices Business B £1,000, plus VAT of £200, for work undertaken. Business B pays business A £1,200. Business B receives the VAT back (£200) from HMRC. Business A pays HMRC £200 for the VAT on the invoice.


Construction businesses should: ● Review supplies made to and received from other VAT-registered contractors to establish where these will be subject to a reverse charge from October 2019 ● Obtain notification from customers that they are an end user and confirmation of their VAT registration and CIS status ● Consider any adaptations required so accounting systems can deal with this change, and ● Consider the impact on cash flow from October 2019 and if there are any other ways to mitigate this.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44