Those working in the construction industry and who use the Construction Industry Scheme (CIS) need to be aware of the VAT domestic reverse charge for construction services. Put simply, the new rules mean those supplying construction services, that fall within the scope of CIS, and that are provided to a VAT-registered contractor, no longer account for the VAT themselves. Instead, those employing the subcontractor have to account for the VAT as a reverse charge on their VAT Return.
Who is affected?
Many businesses in the construction industry are likely to be affected by the VAT reverse charge requirements, with the exception of work done on private homes for the homeowners themselves.
This is because the VAT reverse charge applies only to business transactions that fall under the CIS (between VAT-registered businesses), and the same rules regarding exemptions for the CIS effectively apply to the VAT reverse charge.
What do you need to do?
From 1st March 2021 building and construction services companies will be required to process invoices using a new domestic reverse charge VAT mechanism. Full guidance for this can be found on the HMRC website.
What versions of Sage 200 are CIS Reverse Charge ready?
Sage added new VAT rates required for CIS Reverse Charge VAT into Sage 200 v2019 Summer (and later versions).
In these versions, within the VAT Rates form in Accounting System Manager, is the addition of two extra terms; CIS Reverse Charge Sales, and CIS Reverse Charge Purchases. This will not come already set up in your system, you will need to configure this manually (how to set up VAT rates).
A few things will happen when using these new tax rates. They will affect various boxes on your return depending on whether you are the customer or supplier in the transaction. From a customer perspective, boxes 1, 4 and 7 on your UK VAT return, and T1 and T2 on your Irish VAT Return will be affected by using the CIS Reverse Charge Purchases rate. If you are the supplier, using the CIS Reverse Charge Sales rate will affect box 6 on your UK return and will have no effect on an Irish return. Please note, any transaction where the CIS reverse charge is applied, all other VAT rates much be 0%. You are unable to process a transaction in Sage where the CIS reverse charge combines with another rate greater than 0%; this will be flagged as an error.
Using these rates will also automatically include a note on the invoice or credit note, informing the recipient that the reverse charge is applicable. The note will appear in the footer of the layout and you can select what message is displayed from within the Invoice/Sop Settings.
What if I’m on an older version of Sage 200?
There is a work-around available for older versions of Sage 200 that don’t have the new VAT rates detailed above. For details, refer to Construction Reverse Charge VAT - Workaround for older versions of Sage 200.
If you would like to discuss your specific requirements do not hesitate to contact us on 01324 550760. Alternatively, there’s lots of advice and useful resources on the Brexit process at the Sage Brexit Hub.
