THE VAT Reverse Charge Scheme Explained
27 February 2021
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27 February 2021
The new VAT Reverse Charge Scheme comes into effect on the 1st March 2021.
Where it applies the effect of the scheme is to take VAT payments out of the transaction so the provider of the goods or services cannot disappear or fail to pay the VAT due.
Instead, the purchaser of the goods or services within the CIS supply chain accounts for the VAT (output tax) due to HMRC rather than the provider of the goods or services. The purchaser does this by declaring the VAT due as output tax on its VAT return. This can also be reclaimed as input tax subject to the normal rules – for most transactions the VAT is simply netted off.
The new VAT Reverse Charge Scheme classifies EEBS as a “Labour Provider” and we are not therefore affected by the new regulations. There will be no change to how VAT is invoiced, paid or recorded on these purchases. Other suppliers within the normal CIS supply chain are subject to the new rules.
NOTE 1 Your accounting software should be able to accommodate the new rules, and should help you manage invoices and VAT returns in compliance with the new regulations. You will need to check with your supplier as to exactly what needs to be done.
NOTE 2 When supplying services that are subject to the VAT Reverse Charge Scheme the invoice must clearly state that the “VAT Reverse Charge Scheme applies”, and at what rate the supply would have been made.
NOTE 3 If you are an end user you must provide your CIS suppliers with a statement that confirms:
“We are an end user for the purposes of section 55A VAT Act 1994 Reverse Charge for Building and Construction Services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the Reverse Charge.”
So, for reference;
If your cashflow is damaged by the new scheme you can now move to monthly reporting, to ease the impact of the scheme on your business.
Still confused? Contact the EEBS team for help and advice, firstname.lastname@example.org.