VAT Reverse Charge has been introduced and considered effective since March 1st, 2021. If you are the one who is dealing in construction work and services, you have to go through the following pieces of information.
If you are considering taking advantage of the VAT Reverse Charge you have to go through the following data to figure out either you apply to it or not.
You are a contractor, and you also fall within the scope of CIS.
If yes, then the VAT Reverse Charge applies, and if not, then the normal VAT rule applies. Applying a VAT Reverse Charge on your supplies means you will be paying VAT on the goods you provide to the supplier. You will not be charging the same amount of VAT to the sub- contractor. You might feel about a little imbalance in the cash flow over here but don’t worry it will soon be recovered.
What if you are a sub-contractor?
You are a sub-contractor and VAT Reverse Charge invoices have been issued to you. Now this means that you are receiving goods and services at the original rate that does not include VAT. It does not mean that you don’t have to pay tax. It simply means that you will be paying VAT to HMRC in place of the contractor. In this way, there will be a complete balance in your cash flow.
If your business needs a hand in processing your normal charge, Legend Financial offers team of experts to assist you with your needs. Drop them a message here.
You are a sub-contractor, and you are VAT registered.
If yes, VAT Reverse Charge is applicable. If not, normal VAT rules apply. An important thing that should be mentioned over here is about the rate at which the deal between the contractor and sub-contractor gets finalized. Is it a standard rated or reduced rated?
- Standard rated means that a twenty percent VAT is issued. VAT Reverse charge is applicable in this case.
- Reduced rated means that a five percent VAT is issued. VAT Reverse Charge is also applicable over here.
- But if you are zero-rated then normal VAT values are considered.
“An important thing that should be mentioned here is the rate at which the deal between the contractor and sub-contractor gets finalized.”
If you don’t know if you’re business is classified under standard rated or reduced rated, talk with an adviser here.
You are a customer, and you are VAT registered.
If yes, VAT Reverse Charge gets applicable. But if no, normal VAT rule apples.
You are a customer, and you are CIS registered.
To keep an eye on this issue, subcontractors and contractors should be aware of different information regarding CIS registration. The invoices carry a specific amount of deduction regarding the reverse charge. If your customer is CIS registered then a VAT Reverse Charge should be mentioned in the invoices generated.
The contractor and sub-contractors may use the CIS online portal, if you are not capable of providing evidence to your registration. You have to provide your name and reference number to complete the procedure.
“The invoices carry a specific amount of deduction regarding the reverse charge.”
You are a customer and an end-user as well.
If you are, the normal VAT rule applies and you cannot account for VAT Reverse Charge. But if you are not an end-user and you have to pass the construction work to some other end-user then the VAT Reverse Charge applies to all the expenditures being done by you. It simply means that you were an intermediate supplier.
To avoid any sort of confusion regarding this consideration it is mandatory to do paperwork. In this paperwork, the end-user or the final customer verifies that he is the end-user and has to state the following phrase as a compulsion.
“We are an end-user for section 55A ACT 1994 reverse charge for building and construction services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for a reverse charge.”
Knowing about different terms and conditions can make you more protected against fraud cases. It’s your right to save your amount by taking a deep plunge in this newly effective Tax plan.
If you need an assistance in processing the VAT Reverse Charge of your business, Legend Financial has a team of experts who can help you. Send them a message here.
Below are other common questions related to VAT reverse charge. You can read the full article here.
1. How are the new rules applied?
2. When you must use the VAT Reverse Charge?
3. When you must not use the VAT Reverse Charge?
4. How will the changes affects you?
5. How to prepare for change?
6. What if VAT Reverse Charge does not apply to you?
