The domestic reverse charge must be used for VAT-registered businesses in the Construction Industry Scheme (CIS) from 1st March 2021. Rather than the supplier, it will be up to the end-customer who purchases the construction services or materials to account for the VAT themselves.
This changes the way that suppliers charge and account for VAT on their invoices, so we’ve released some updates in Pandle to help you ensure your bookkeeping and VAT returns are accurate!
What do I need to know about the domestic reverse charge for VAT?
In short, the VAT reverse charge applies to VAT registered businesses which carry out construction work in the UK. Both the supplier and their customer must be VAT and CIS registered for the reverse charge to apply.
The domestic reverse charge can apply to services or to materials which are VAT-taxable at the standard rate(20%) or reduced rate (5%). You won’t need to apply the reverse charge if the supply is VAT exempt.
Where the new rules apply, the way you show VAT on invoices and account for it in your records will change.
When should I apply the domestic reverse charge?
The reverse charge will only apply if:
- The supply falls within the scope of CIS
- It would normally be charged at the standard (20%) or reduced (5%) rate of VAT
- Both the supplier and the customer are VAT registered
- The supplier and the customer are both CIS registered
- The customer hasn’t provided confirmation that they’re the end user
In all other cases, normal VAT rules apply.
How do I apply the reverse charge in Pandle?
You can enable the reverse charge tax code for relevant customers or suppliers by ticking the ‘Reverse Charge?’ box when creating or editing customer or supplier details in Pandle.
To edit existing ones, go to the ‘Customer’ or ‘Supplier’ tabs under ‘Enter Transactions’, and click ‘edit’.
Once enabled, you’ll have the option to select the reverse charge VAT code each time you create new invoices for that customer or supplier.
Just remember! The exempt (EX) tax code and the reverse charge (RC) tax code might both show 0% VAT, but it’s important to select the right one! This will help make sure that your invoices and VAT returns are accurate – which is good news for HMRC compliance.
What should I do about invoices for mixed supplies?
HMRC have said that they want the domestic reverse charge system for VAT to be as simple as possible (which is something we can all agree on!). Apply the VAT reverse charge to the entire invoice, even if it only applies to part of it.
We like to think of it as another tick in the box for making bookkeeping for businesses easier. Hurrah for that!