Construction Industry Domestic Reverse Charge VAT
From 1st March new VAT rules apply to the Construction Industry.
A new Domestic Reverse Charge on supply of some construction industry services is being introduced. The measure is brought in to stop suppliers fraudulently charging VAT on their invoices.
Who does this apply to?
The new rules apply to the all VAT registered Construction Industry businesses, but not to all services supplied by the Construction Industry. These businesses will need to consider the correct application of the Domestic Reverse Charge on both the sale and purchase of services.
Selling Services
The Domestic Reverse Charge must be applied when all of the following conditions apply:
The Services being supplied fall within the scope of CIS
The Services being supplied are normally Standard (20%) or Reduced Rate (5%) supplies
The Customer is VAT registered
The Customer is CIS registered
The Customer has confirmed it is the ‘End User’ (ie the Customer will be getting the benefit of the service)
You are not supplying labour as an Employment Service*
If any of the above conditions are not met, normal VAT rules apply.
* An Employment Service is one where the service being provided is the supply of employees. This is distinct from a Construction Service where labour maybe supplied but is part of the service of a building contract.
Buying services
It is also important to know when services being bought should fall under Domestic Reverse Charge. The conditions for applying Domestic Reverse Charge are the converse of those above:
Your business is VAT registered
You are buying Services that fall within the scope of CIS
The Services supplied are normally Standard (20%) or Reduced Rate (5%) supplies
You confirm with your supplier that you are the ‘End User’
You are not buying Employment Services
Issuing invoices
Invoices issued under Domestic Reverse Charge need to fulfil special requirements:
The Services should make clear the Domestic Reverse Charge is being applied using the phrase ‘Reverse Charge’
The normal rate of VAT for the service being supplied (20% or 5%)
For all Co- customers who use Xero as standard, this will automatically be shown as required on invoices raised in the invoice module.
Completion on the VAT return
For Sales made under Domestic Reverse Charge no Output VAT (the VAT your add to invoices) is included in the VAT Return (Box 1). The Net Sales is included (Box 6).
For Purchases of supplies under Domestic Reverse Charge the VAT that the supplier has not applied (either 20% or 5%) appears with the total of Output VAT (Box 1) and in the total of Input VAT being reclaimed (Box 4).
Again for Xero users this will be automatically applied.
special rules
Additional rules apply for the following:
Flat Rate scheme
Cash Accounting
Supply to Utility Companies and Local Authorities
Further reading on the additional rules may be found in HMRC’s Technical Guide.
