After being postponed twice, 1st March 2021 finally sees the introduction of the domestic reverse charge on building and construction services.
An anti-fraud measure introduced by HMRC, it aims to cut down so-called missing trader fraud where businesses charge and receive VAT and do not pay it over to HMRC.
Under the changes subcontractors will no longer be responsible for reporting the VAT due to HMRC and contractors will now need to report both the input and output VAT.
CIS subcontractors will no longer charge VAT on their invoices to their CIS contractor customers. Instead, they need to include a statement that the customer is responsible for the VAT and show what rate of VAT should be applied.
CIS Contractors will need to include the input VAT and Output VAT on their subcontractor invoices to HMRC.
If you are not already using the CIS module in Xero now would be a good time to make the switch, as not only does Xero automatically handle the reverse charge VAT on sales and purchase invoices, it also automatically deals with CIS deductions, creates all the necessary paperwork and allows Returns to be submitted directly to HMRC.
If you already have the CIS module activated then you just need to add the domestic reverse charge VAT rate.
Clicking the Add domestic Reverse Charge Tax Rates button again will add the tax rates below.
If you are a subcontractor using the reverse charge rates will include the correct explanatory wording on the face of your invoices.
There are several other practical points to consider when accounting for the domestic reverse charge:
For more information, HMRC are running a number of webinars and you can Register here