Reverse charge VAT 3: How you are affected
>> VAT Reverse Charge comes in on the 1st March 2021 <<
In short, the Reverse Charge VAT scheme means those supplying services subject to the domestic reverse charge, no longer add VAT to their invoice. Instead, it becomes the responsibility of the customer to settle all VAT liability for the services rendered.
Practically this means if you're supplying a service subject to the domestic reverse charge, you must:
Show all the information required on a VAT invoice.
Make a note on the invoice to make it clear that the domestic reverse charge applies, and that the customer is required to account for the VAT.
Clearly state how much VAT is due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown, but the VAT should not be included in the amount charged to the customer.
From now on, when supplying a qualifying service, you must not enter any output tax on sales under the reverse charge. You only need to enter the net value of the sale.
This means no VAT will be due on payments from customers where the supply is covered by the reverse charge. All you need do is include the value of the sale in your VAT Return when you receive the payment.
If you supply services that are not subject to the reverse charge, for example to private individuals or end users, you must account for VAT on the dates you were paid, as it stands today.
If you're the one buying the service subject to the reverse charge, you must enter the VAT charged as output tax on your VAT return. Make sure you do not enter the net value of the purchase as a net sale.
You may reclaim the input tax on your reverse charge purchases, subject to the normal VAT rules.
If you receive a service subject to the reverse charge from sub-contractors, you’ll have to account for the VAT in your VAT Return and recover it simultaneously on the same VAT Return, subject to the normal rules on VAT input tax deduction.
You can account for this on the date you make the payment to your sub-contractor, unless they have issued you with a tax invoice beforehand, in which case you should account for the VAT using the date of the invoice.
In helping you manage this, cloud (online) accounting software, such as Xero or QuickBooks, will be able to show the reverse charge.
If it can't show the amount of VAT to account for under reverse charge, it would be worth thinking about moving to a provider that can. Failing that, you must:
State that the VAT is to be accounted by the customer.
Add wording to the invoice to say ‘customer to account to HMRC’ for the reverse charge.
Make sure your customer can identify reverse charge goods or services.
The change is subtle, but important.
If you want to understand why it is happening, this blog will help.
If you want to dig into the technicalities further, you can read more on the HMRC website.
We have also produced a 2:09 video which helps explain the changes in more detail.
And of course, if you have any further questions we'd be delighted to help.
Just drop me an email using the link below.
P.S. Don't forget to look back at some of our other articles in the Reverse charge VAT series: