A major change means that new VAT rules for the construction industry have been announced – and it is only weeks away.
Will you be affected by the new VAT rules for construction and how should you prepare for it?
From 1 October 2019 a reverse charge for VAT will apply to building and construction services. It will affect you if your business makes or receives supplies which are covered by HMRC’s construction industry scheme (CIS) and you are registered for VAT.
In simple terms the reverse charge means that when, on or after 1 October 2019, you bill a customer for services to which the CIS applies you must not charge VAT.
The other side of the coin is that when you receive supplies of CIS services you must account for VAT (charge yourself VAT) at the appropriate rate (standard 20% or the lower 5% rate) and on the same return reclaim the VAT if entitled to according to the usual rules.
You will need to change the settings in your bookkeeping and invoicing software to account for and report the reverse charge correctly on your VAT returns so that:
- Where you’re the supplier, not entry in Box 1 (VAT on sales etc) is made for CIS goods or services, but the value of such sales is included in Box 6
- Where you are the customer you must enter in Box 1 the VAT on purchases subject to the reverse charge. Do not enter the vale of the purchases in Box 6. Also, include the amount of reverse charge VAT you’re entitled to reclaim in Box 4
- If you use invoicing software make changes to ensure that VAT isn’t added for supplies where the reverse charge applies.
If you need more help or advice, get in touch here and we’ll help you figure it out.