Reverse Charge VAT – new legislation in October this year
On 1 October 2019 there is to be a change in how VAT is to be dealt with for those businesses registered for VAT and CIS and those who pay suppliers who are VAT and CIS registered. This is known as Reverse Charge VAT.
Reverse Charge VAT is where instead of the supplier (e.g. a subcontractor) charging their customer (e.g. main contractor) VAT, the customer charges itself VAT and then looks to reclaim it. So when there is an invoice raised between two businesses that are both registered for CIS and VAT, there will be no VAT added to the invoice for the services and no VAT will be physically paid.
The Reverse Charge VAT will relate to general construction services including groundworks and maintenance services but not to professional consultant services (e.g. architect/engineer). It will cover both VAT at 20% and 5% but naturally not zero rated works.
Reverse Charge VAT is already in operation; for example, where a business buys goods from another EU country.
So this is really just a brief heads up to say that it would be prudent for those registered for CIS and VAT to seek advice from their accountants as to how this will impact on their cash flow and invoicing procedures.
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