Construction Individual

HMRC VAT CHANGE: DOMESTIC REVERSE CHARGE

After some intensive lobbying, the UK government agreed to move a substantial change to how VAT is collected in the construction sector back until 1 October 2020.

The change will have a substantial impact on thousands of subcontractors, most notably on cash flow. Read our guide to what is changing and how to prepare so your cash flow is protected.

DOES THE DOMESTIC REVERSE CHANGE AFFECT MY BUSINESS?

Covered by CIS?

If the service you provide is covered under the CIS scheme, it will most likely be subject to the Domestic Reverse Charge.

If not, normal VAT rules apply.

VAT RATING?

If the service you provide is either standard or reduced VAT rate, it will most likely be subject to the Domestic Reverse Charge.

If not, normal VAT rules apply.

VAT REGISTRATION?

If your customer is VAT registered, the service you provide will most likely be subject to the Domestic Reverse Charge.

If not, normal VAT rules apply.

CIS REGISTRATION

If your customer is CIS registered, the service you provide will most likely be subject to the Domestic Reverse Charge.

If not, normal VAT rules apply.

END USER?

If your customer has confirmed they are NOT the end-user, the service you provide will be subject to Domestic Reverse Charge.

If your customer IS the end-user, normal VAT rules apply.

DOMESTIC REVERSE CHARGE

If you have arrived here, the Domestic Reverse Charge applies to your business.

Contractors on-site

WILL THERE BE AN IMPACT ON MY CASH FLOW?

The VAT Reverse Charge will have two impacts on your cash flow

First, if you are a supplier impacted by this change you will no longer receive the VAT element of an invoice. While this means you are no longer responsible for collecting VAT for HMRC, you will no longer have the cushion of that money in your business. In effect, this will reduce your revenue by up to 20%.

Second, you will still have to pay the VAT element on any materials you purchase. If you submit your VAT Returns & Payments quarterly, this means cash out of your business for months on end. The changes to the VAT reporting may make you a net reclaimer of VAT which entitles you to move to monthly returns. You will need to do this by September 2020.

As with any substantial change, there will be a period of volatility which makes ensuring a strong cash flow is maintained becomes a primary importance. You might also want to consider Bad Debt Protection, especially if your contract is not with the main contractor.

 

DOMESTIC REVERSE CHARGE SUMMARY

> Decide if you are a contractor or subcontractor
> Check you have the correct VAT and or CIS registration numbers
> Check if your customer is an end-user or intermediary
> Make sure your accounting software is updated and your staff are trained
> Make sure your invoices are worded correctly
> Above all, talk to BFS and protect your cashflow

GET YOUR BUSINESS READY FOR 1 OCTOBER 2020

Call 0808 000 0000

Or complete the form and one of our Construction Finance team will call you back.
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