4 Things You Need To Know About The VAT Domestic Reverse Charge

VAT Domestic Reverse Charges

Substantial changes are coming to VAT reporting for construction and building services.

Originally due to come into effect at the end of 2019, the implementation of the domestic reverse charge for building and construction services was delayed as a result of Coronavirus. To give businesses more time to prepare, the introduction of the reverse charges will now be in force from the 1st of March 2021.

Here is some key information you need to know about the changes, including what new features have been added to Clik software.

 

What is the VAT reverse charge?

The UK Government is introducing a new initiative that affects VAT registered business and individuals in the building and construction industries. The domestic reverse charge is an anti-fraud measure that applies to the sale and purchase of specified goods.

This will come into effect from the 1st of March 2021 and changes the way VAT is collected for many specified services under the Construction Industry Scheme (CIS).

 

Who is affected by the VAT reverse charge?

These new implications only apply to individuals or businesses registered for VAT in the UK and supply services that require CIS registration.

There are some exceptions to these measures. The reverse charge does not apply to end users (consumers and final customers) or zero-rated supplies. There are also further services the changes do not apply to. You can find a full list of instances to not use the reverse charges on the Government website.

You can find flowcharts for both buyers and suppliers to demonstrate which cases the standard VAT rules would apply and when to implement the domestic reverse charge.

If you are unsure if this measure applies to you, we advise contacting the HMRC directly.

 

How to prepare for the VAT reverse charge

Firstly, you will need to recognise if the reverse charge affects you and your business. You may need to adjust the way you fulfil invoices, whether you buy or sell within the construction sector.

Familiarise yourself with the new implementations before the 1st March 2021 so you have a better understanding of what will change and ensure that your workforce is aware of the new measures. For details on how to prepare and when you should be using the reverse charge, please view the Gov website. If these changes affect your line of work, you may need to alter your accounting process.

 

Using the domestic reverse charge in Clik

In Clik Service update v4.335, we added new features to help you manage the domestic reverse charge change.

The update allows you to add the new VAT code supplied by your account package into Clik. This will make sure you are posting to your accounts correctly. It also displays the reverse charge on invoice templates produced in Clik Service.

clik service, tax rates

It’s important that you check if your accounts package supports the changes to VAT. You may also need to speak with your accountant to see how it affects you. Please refer to Xero, QuickBooks and Sage for more information.

 

Further Reading:

4 comments on “4 Things You Need To Know About The VAT Domestic Reverse Charge

    1. Hello Helen, thank you for your comment. We are now in testing stages for the update and are working towards having it available before the end of next week (week commencing 22nd February). If you have any further questions about the VAT reverse charge update for Clik Service, please get in touch at hello@cliksoftware.com. Thanks – Jess

  1. Will the update have a option that can be set per customer on if they are to be treated as a end user and require a standard VAT invoice, or if they are to get a reverse charge invoice so that when raising invoices there is some notification or the correct tax code is used by default.

    1. Hello Ewan, thank you for your comment. The update will have the two new tax codes for VAT domestic reverse charge. You will be able to apply these codes to customers and suppliers that require domestic reverse charge across their financials. So any invoices, for example, will have the tax codes applied for that specific customer. This article shows the details on how to change the tax codes. I hope that helps, please feel free to email us if you have any further questions. Thanks – Jess

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