The charge applies to standard and reduced-rate VAT services:
The domestic reverse charge VAT procedure is an anti-fraud measure designed to counter sophisticated criminal attacks on the UK VAT system. It intends to cut down on “missing trader” fraud, where companies receive high net amounts of VAT from their customers but have no intention of paying the VAT to HMRC.
It affects VAT registered construction businesses who supply or receive construction and building services that are reported under the Construction Industry Scheme or CIS. It means the customer (contractor) will be responsible for the VAT due to HMRC instead of the supplier (subcontractor).
If you are a CIS subcontractor you will no longer charge VAT to your CIS customers. Instead, on your invoices you need to state your customer is responsible for the VAT and show what VAT rate should be applied.
If you are a CIS contractor when you receive a bill from your CIS subcontractor you are responsible for reporting both the input and output VAT on that bill.
This change may impact your cash flow. If you are a subcontractor then it’s likely your short term cash flow will be impacted as you will no longer be receiving the VAT payment from your customer. If you are the contractor, you will likely have a short term cash flow benefit.
You should also review what you currently use to manage your business finances. If you don’t currently use online software then this is a great time to start. Using Liquid Cloud Accounts makes life a whole lot more straightforward when it comes to dealing with CIS and VAT.
It is not straightforward to determine whether you should or should not participate in the scheme, so HMRC have a webpage where you can determine what your status is in regard to this – see it here.
If you determine that you have to participate in the scheme, Liquid Cloud Accounts is ready to deal with this – if you need assistance, please contact Support on firstname.lastname@example.org
The Liquid Team