REVERSE CHARGE VAT

On the 1st March 2021, HMRC brought in a new legislation, Reverse charge VAT.

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Reverse charge VAT

Reverse Charge VAT is for the building and construction industry. If you work within this area you will need to understand whether it is going to impact your business.

There are just two simple questions that you need to answer to find out if this is the case:

 

1. Firstly, are you VAT registered?

2. And secondly, do you work within the scope of CIS? That is either as a subcontractor or a contractor.

If you answered yes to both of these questions, then it is something you need to plan for.

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What Reverse charge VAT is, and what is changing

If you are working as a subcontractor, you need to understand who the client is and whether they are classed as an end-user or not.

If you are not working for an end-user then you will need to start invoicing those clients on a Reverse charge VAT basis from the 1st of March.

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How you are affected by Reverse charge VAT

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This means, when your invoices are paid you will only receive the Net amount of that
invoice, because the VAT is paid straight to HMRC by the contractor or by your client.

This might affect your cash flow because you are receiving less money than you are used to.

Now, as a contractor, you will be receiving Reverse charge invoices from your
sub-contractors and you pay them on the net basis.

However, you need to make sure that you put some money aside so when you come to do your next VAT return you have the cash flow available.

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The VAT is likely to go up because of the amount you are holding on behalf of the
subcontractor.

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How to manage the change of Reverse charge VAT

It is a complex subject and lots of businesses will be affected in different ways, but if it is
going to impact you, you need to be ready on the 1st of March.

Please feel free to call Business Buddies we will happily provide you some advice specifically for your business, to make sure you manage this change in the best way for your business.

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