VAT Reverse Charge - How's it going to affect you?

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I hope everyone has enjoyed the two-week construction shutdown over Christmas. Traditionally a good time for people to put down the tools and head to the sun for some well-deserved R & R, unfortunately like much of 2020 this year has been different. Sites were still open on Christmas week and Mad Friday was cancelled for most due to the Tier system the government had in place. Roll on 2021.

After a few delays the Domestic reverse charge (DRC) is finally here and will come into effect on the 1st March 2021. If you are VAT Registered individual or business and report under the Construction Industry Scheme this is going to impact you in varying ways, some of the key issues are cashflow, software and written notification. Please see how these could affect you below:

Cashflow

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** To have a look at the qualifying rules that apply, click here

Software

Make sure your accounting systems and the software you are using is the most up to date available to ensure the minimum disruption when applying the Domestic Reverse charge. Cloud accounting software that supports CIS and VAT will update automatically. Manual software installed onto the computer will require contact with the provider to receive updated software. 

Sage 50 Accounts v27 has created two new tax codes T21 & T26, which automatically feed into the correct boxes on the VAT return. Sales Invoices have also been updated when these codes are used to apply the additional text required for DRC. 

All software will be different, just take some time to find out what stage yours is currently at and act accordingly to update the software if necessary and familiarise yourself with the new layouts.

Written Notification

Letters of contract are not legally required, however as a good accounting procedure I would suggest sending evidence you are aware of the changes. Confirming your VAT and CIS status and that any invoices beyond 1st March 2021 will be processed under DRC legislation. Having the back up of either a letter or an E mail having been sent in your records if the Vat were to investigate shows you understand the new legalisation and are complying to the best of your knowledge. 

For more information on why the DRC has been implemented, any exclusions and key points you need to know, have a look here.