Deferred until October 1st 2020

New rules due to effect those in the Construction Industry and CIS

HMRC are changing the method of dealing with VAT and the point at which VAT is handed over to them and reclaimed back.
The onus will be on the last contractor to charge VAT to their end user and then report this to HMRC. All those lower down the supply chain will deal with this under the reverse charge scheme, similar to the rules that have been used when dealing with European purchases / sales

Example

A typical construction transaction which will be caught after 1 October is as follows: Subcontractor Steve has done £2,000 of decorating work (including materials) for Contractor Clive – the latter will invoice the building owner for the project in question. Steve’s work is captured by the new rules because it is a builder-to-builder supply.

Current procedures

Currently, Steve charges Clive £2,000 + £400 VAT and includes £400 on his VAT return as output tax (Box 1) and the net sale of £2,000 in Box 6. Clive pays him £2,400.

Neither Steve nor Clive use the flat rate scheme.

Clive will claim input tax of £400 in Box 4 of his VAT return and record the net expenditure of £2,000 in the inputs Box 7.

New rules

From 1 October 2019, Steve will invoice Clive for £2,000 with no VAT included, noting on his invoice that Clive must deal with the VAT on his own VAT return by doing the reverse charge.

The key point with the new rules is that the same boxes will be completed overall but the Box 1 entry just moves from Steve’s VAT return to Clive’s return – that is the only change.

This is because Clive will pay Steve just £2,000 from 1 October and not £2,400, so Steve has no VAT money to include on his return.

Overall, HMRC is still receiving Box 1 and Box 4 entries for £400 and Box 6 and Box 7 entries for £2,000 ie the status quo

Yet more changes for the small companies, if dealing with your books is becoming a burden give Emjay a call 01903 367073. You wouldbe surprised at what we could do for you.