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Reverse Charge VAT

From the beginning of October 2019, there will be changes to VAT procedures for construction services.

Reverse Charge VAT
Domestic Reverse Charge will come into effect on 1st October 2019. Businesses will no longer charge VAT on their invoices, the business who receives the services will charge themselves the VAT. Reverse charge will apply to the way VAT is collected in the building and construction industry. Businesses registered for VAT in the UK where services are reported under the HMRC Construction Industry Scheme (CIS) will have to follow the new rules. Under the new rules for reverse charge VAT the main contractor will account for the VAT on the services of any subcontractor, and will have to pay the VAT to HMRC instead of the subcontractor.





So;

When paying sub-contractors who are not VAT registered, nothing changes.

When buying materials, nothing.

When paying subcontractors who are VAT registered, the new rules on reverse charge apply.

When billing contractors who are VAT registered, the new rules on reverse charge apply.

These changes have occurred due to HMRC aiming to minimise fraud and will have no financial impact on businesses. Mistakes to the reverse charge procedure if committed with good intentions will be treated with leniency while the new system rolls out in order to provide flexibility to those navigating the new rules.


Under certain services these rules will or won’t apply. Services which will be affected include those which offer the standard rates of VAT.  

Including but not only;

  • Construction
  • Alteration
  • Repair
  • Demolition
  • Installation of heat, light, water and power systems
  • Drainage
  • Painting
  • Scaffolding
  • Civil engineering works and associated site clearance
  • Excavation


Businesses excluded from the reverse charge include;

  • Surveyors, architects or interior/exterior consultants
  • Drilling involving extraction of oil, natural gas or minerals or construction of underground works
  • Manufacturing or delivery of equipment or machinery
  • Manufacturing or delivering components for heating, lighting, air, power, sanitation, drainage or fire protection
  • Sign writing and signboards, installing and repairs
  • Installation of seating, blinds, shutters and security systems.


Pegasus CIS v4.10 and Opera 3 (2.61.01) have both been updated in order to comply with these new methods of VAT filing. Opera 3 already allows VAT to be reverse charged. Opera 3 can be used for those in the construction industry who do not have Pegasus CIS. For information on How to set up reverse charge VAT on Pegasus you can read the instructions on the official Pegasus site.  

For the Full guidance on changes you can visit the government website which details all the information needed for Reverse Charge VAT.

If you need help formulating your reverse charge plan, email us now and we will help!

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