BUSINESS ADVICE
“For services they provide affected by the reverse charge, sub-contractors will require the contractor employing them to handle and pay the VAT directly to HMRC.”
works forming, or to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence • Installation in any building or structure of systems of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection • Internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration • Painting or decorating the internal or external surfaces of any building or structure Remember that the reverse charge applies to the services listed above plus any construction materials used directly for those services. This is different to the CIS scheme, which does not cover materials. 6. I’m a sub-contractor. What does the VAT reverse charge for construction services mean for my business? In theory, it means very little because when you issue your VAT invoice you will merely be passing on the VAT charge that you would have had to account for in any event. You will, however, need to expect a change to the way you reconcile customer’s payments against invoices issued, as any VAT registered customers will be withholding the VAT element for
any CIS related supplies. You’ll need a different kind of invoice. It might also affect your cash flow because the VAT you previously held before passing it monthly/quarterly to HMRC as a payment will no longer be available for any uses you might have put it to. 7. I’m a contractor. What does the VAT reverse charge for construction services mean for my business? If you’re a contractor (i.e. purchase CIS regulated construction services) then, in theory, it means you need to ensure that when you receive reverse charge VAT invoices you correctly account for them. You’ll need to pay any VAT due directly to HMRC as part of your normal VAT settlement process instead of paying the VAT on CIS related supplies to your supplier. This may require an update to your accounting software if you do not use cloud software. You may gain a cash flow benefit because the VAT you previously had to pay when paying sub-contractors, but could not reclaim until your next VAT return, is simply netted off in your VAT return. There should be no net impact on your overall VAT bill. You will need to complete your VAT Return differently.
services supplied between the majority of construction sub-contractors and contractors in the UK. 5. What construction services does the VAT reverse charge apply to? According to HMRC, the reverse charge applies to the following: • Construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations
• Construction, alteration, repair, extension or demolition of any
“If you’re a contractor (i.e. purchase CIS regulated construction services) then, in theory, it means you need to ensure that when you receive
EDITOR’S NOTE: This is an abridged version of a blog post kindly supplied to us from Sage Advice. To read in full, visit: http://1sa.ge/34fm50DDsW3
reverse charge VAT invoices you correctly account for them.”
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