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United Kingdom: Tax update – CIS and VAT combating fraud together

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published on 10 May 2021 | reading time approx. 1 minute

 

After a few attempts, HMRC have now implemented VAT Reverse Charge accounting on Building and Construction services.

 

 

The reverse charge procedure became mandatory for VAT registered businesses in the UK from 1 March 2021, that supply Building & Construction services and meet all of the following criteria:
  • your customer is registered for VAT in the UK
  • payment for the supply is reported within the Construction Industry Scheme (CIS)
  • the services you supply are standard or reduced rated
  • you’re not an employment business supplying either staff or workers or both
  • your customer has not given written confirmation that they are an end user or intermediary supplier

What you should do

  1. Check if your customer has a valid VAT number click here
  2. Check your customer’s CIS registration click here
  3. Review your contracts to decide if the reverse charge will apply
  4. Ask your customer to confirm whether they are an end user or intermediary supplier
  5. Record the reverse charge in your accounts

Applying the reverse charge

You will need to ensure your accounting system has been updated to reflect the correct treatment of VAT on invoices, so customers will no longer pay you VAT. 

It has also been suggested from HMRC guidance that reverse charge invoices should be updated to reflect one of the below wording: 
  • reverse charge: VAT Act 1994 Section 55A applies
  • reverse charge: S55A VATA 94 applies
  • reverse charge: Customer to pay the VAT to HMRC

Non-compliance

HMRC understands that implementing the reverse charge may cause some difficulties and will apply a ‘light touch’ in dealing with any errors made in the first 6 months of the new legislation, as long as it can be seen that efforts have been made to be compliant and businesses have acted in good faith.
 
HMRC officers may assess for errors during the ‘light touch’ period, but penalties will only be levied where HMRC believe tax payers are deliberately taking advantage and not accounting for it correctly.

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