Domestic Reverse Charge

posted on August 6, 2019in the Blog Category

Domestic Reverse Charge

Under new rules due to come in on 1 October 2019 builders, sub-contractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.

The domestic reverse charge will only affect supplies at the standard or reduced rate where payments are required to be reported through the Construction Industry Scheme (CIS).

Therefore supplies between sub-contractors and contractors, as defined by CIS, will be subject to the reverse charge unless they are supplied to a contractor who is an end user.

A domestic reverse charge means that the customer receiving the supply of specified construction services must account for the VAT due rather than the supplier.  In turn, the customer deducts the VAT due on the supply as an input, meaning no net tax is payable to HMRC. This removes the scope to evade any VAT owing to HMRC.

Guidance encourages traders to:

* Check whether the reverse charge affects either sales, purchases or both;

* Make sure accounting systems and software are updated to deal with the reverse charge;

* Consider whether the change will have an impact on cash flow; and

* Make sure all staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate.

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system.

More detailed guidance from HMRC can be found here.


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