For VAT reverse charge to apply the subcontractor must be able to answer these questions
- Is the work being done a construction activity (CIS340)
- Are both the Subcontractor and Contractor registered for VAT (and the VAT rate isn’t Zero) and CIS
- Does the contractor have an onward supply for Construction Services (in other words they aren’t the end user or an intermediary)
Assuming the answer to all 3 questions is YES then VAT reverse charge will apply and the subcontractors invoice need to look like this one.
Under the VAT Regulations 1995 invoices for domestic reverse charge supplies, when the customer is liable for the VAT, must include the reference ‘reverse charge’. The following examples fulfill the legal requirement:
•Reverse charge: VAT Act 1994 Section 55A applies
•Reverse charge: S55A VATA 94 applies
•Reverse charge: Customer to pay the VAT to HMRC
The Subcontractors VAT return will look this.
All the major software providers have this covered for you, for example on Sage Accounting you just need to tick a box on Customers Account Settings.