Tag: Reverse Charge

VAT Construction Reverse Charge – what does the Subcontractor Invoice need to look like?

laughing male constructor showing thumb up at working desk

For VAT reverse charge to apply the subcontractor must be able to answer these questions

  1. Is the work being done a construction activity (CIS340)
  2. Are both the Subcontractor and Contractor registered for VAT (and the VAT rate isn’t Zero) and CIS
  3. 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.

steve@bicknells.net

What is a Specified Construction Activity?

VAT reverse charge started on 1st March 2021 if you buy or sell building and construction services, but what are construction services?

The CIS rules for reverse charge were set out in statutory notice 2019/892 (The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019)

Specified services

4.  The services referred to in article 3(1) are construction services as defined in articles 5 to 7 together with any goods supplied with those services which fall to be treated as part of a single supply of services.

5.  “Construction services” comprise—

(a)construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations;

(b)construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;

(c)installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection;

(d)internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;

(e)painting or decorating the internal or external surfaces of any building or structure;

(f)services which form an integral part of, or are preparatory to, or are for rendering complete, the services described in paragraphs (a) to (e), including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

6.  “Construction services” do not include—

(a)drilling for, or extraction of, oil or natural gas;

(b)extraction (whether by underground or surface working) of minerals and tunnelling or boring, or construction of underground works, for this purpose;

(c)manufacture of building or engineering components or equipment, materials, plant or machinery, or delivery of any of these things to site;

(d)manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or delivery of any of these things to site;

(e)the professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape;

(f)the making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature;

(g)signwriting and erecting, installing and repairing signboards and advertisements;

(h)the installation of seating, blinds and shutters;

(i)the installation of security systems, including burglar alarms, closed circuit television and public address systems.

But the more detailed definitions are in Construction Industry Scheme: CIS 340 Appendix A, B, C

Under the new Construction Industry Domestic Reverse Charge identifying whether the activity is a construction activity is the first test you need to apply.

VAT Reverse Charge has a wider scope than CIS in that it covers Mixed Supplies, these are supplied where part of the supply is a construction activity and part is not but the whole contract is treated as within VAT Reverse Charge.

Services with reverse charge and normal VAT charging

Supplies where the reverse charge element is a minor part

Normally if any of the services in a supply are subject to the reverse charge, all other services supplied will also be subject to it. However, if the reverse charge part of the supply is 5% or less of the value of the whole supply this can be disregarded (this is referred to the ‘5% disregard’) and normal VAT rules will apply if the customer makes an end user or intermediary supplier notification.

Supply and fix works will be subject to the reverse charge because the services and goods are part of one supply for VAT purposes. For example, a joiner constructing a staircase offsite then installing it onsite, will be making a reverse charge service even if the charge for installation is only a small (subject to the 5% disregard) element of the overall charge.

In addition, if 2 parties have already had a reverse charge service between them on a construction site, for convenience they can both agree that any subsequent construction supplies on that site can be treated as reverse charge services.

steve@bicknells.net

Construction Industry Reverse Charge from October 2019

New VAT rules are coming into force from 1st October 2019 to create a domestic reverse charge for Construction, known as Construction Services Domestic Reverse Charge.

HMRC are introducing the change to combat missing trader fraud.

VAT registered construction clients will need to account for reverse charge as it was a self supply, the supplier won’t charge them VAT. This then removes the risk of deducting input tax when the output tax has never been paid.

The new system will not apply to Zero Rated Supplies.

Unlike some other “reverse charge” schemes, amounts accounted for under the CSDRC will not count towards the VAT registration limit. This means that if a customer is not already required to be registered for VAT, the CSDRC “deemed self-supplies” will not change this.

Subcontractors will see a loss of cashflow under the scheme and its likely to cause issues for customers as they need their Making Tax Digital systems to be able to cope with the change.

Subcontractors also need to be sure that their services are within CSDRC before agreeing not to charge VAT.

CSDRC will follow the CIS rules to determine what is within the scope of CSDRC.

In the first 6 months HMRC has suggested they will apply a light touch to the new rules.

steve@bicknells.net

 

 

Are you accounting for VAT on Google AdWords and Linked In?

Pay per Click

AdWords are invoiced from the Republic of Ireland and subject to ‘Reverse Charge‘ VAT.

When you buy services from suppliers in other countries, you may have to account for the VAT yourself – depending on the circumstances. This is called the ‘reverse charge’, and is also known as ‘tax shift’. Where it applies, you act as if you are both the supplier and the customer – you charge yourself the VAT and then, assuming that the service relates to VAT taxable supplies that you make, you also claim it back. So there’s no net cost to you – the two taxes cancel each other out. [HMRC]

If you can’t give Google a UK VAT registration number they will charge Irish VAT at 21%.

If you can supply a VAT registration number you won’t be charged Irish VAT and will be subject to ‘Reverse Charge’, this means you calculate the amount of VAT – Output Tax – on the full value of the services supplied to you, and then fill in the relevant boxes on your VAT Return as follows:

  • put the amount of VAT you calculated in Box 1, and if you’re entitled to reclaim the VAT on your purchase of these supplies, also put the same figure in Box 4 (this in effect cancels out the figure in Box 1)
  • put the full value of the supply in both Box 6 and Box 7

So all the figures net off to Zero!

If you make reverse charge sales – sales to which a reverse charge is applied – you must notify HMRC and send in regular Reverse Charge Sales Lists.

Linked In invoices are also subject to ‘Reverse Charge’ this is how you can give Linked In your VAT Registration:

If you purchase LinkedIn products for business purposes, you can provide your Value Added Tax # (for European Union or EU VAT customers) for proper tax handling. This information can be added for future orders (not past receipts) on the Payment section of your Privacy & Settings page.

To add your VAT number:

  1. Move your cursor over your profile photo in the top right of your homepage and click Privacy & Settings. For verification purposes, you may need to sign in again.
  2. Click Manage Billing Info.
  3. Click Edit next to the VAT # field.
  4. Enter the 2-character country code followed by your VAT#. For example, LinkedIn’s Irish VAT# is IE9740425P.
  5. Click Update.

Here is a great guide I found which explains how to master adwords

https://www.paidtraffic.io/blog/adwords-mastery-guide-start-small-win-big/

 

steve@bicknells.net