The domestic reverse charge for CIS registered businesses was due to start on 1 October 2019, but shortly after 3pm on Friday 6 September HMRC released Revenue and Customs Brief 10(2019), which announced a 12-month delay until 1 October 2020.
It is regrettable that this postponement was announced so close to the implementation date, as many firms have spent a lot of time and money getting their clients ready to handle this complicated change to their VAT processes. The reasons given for the delay are concerns within the construction industry and to avoid the changes coinciding with Brexit.
We will now have to repeat the communications exercise to our CIS registered clients, telling you to put on hold any changes you had planned for your invoicing procedures, VAT periods and the flat rate scheme. If you have already made alterations in these areas, this is what we can do:
The VAT invoice procedure needs to revert to charging VAT on all sales invoices. Where the structure of the invoice can’t be changed back before 1 October to charge VAT, a separate VAT-only invoice should be raised. HMRC has said it will take into account the fact the change in the implementation date for the reverse charge may have cause errors when it reviews businesses’ VAT records.
Under the reverse charge process subcontractor businesses would not charge VAT on their invoices to the contracting firm in the chain above them. The subbie would thus not receive any VAT from their customer but would have to pay out VAT on their purchases. This would have a significant effect on their cash-flow and put those subcontractors in a VAT repayment claim position. One way to ease that pain is to change to monthly VAT returns, so VAT could be reclaimed more frequently.
If you have already changed to monthly filing periods, your VAT period can be amended to quarterly periods through your business tax account. If you signed up to MTD we can do this as your agent through the page: “Manage your client’s details for MTD for VAT”. If you have not signed-up to MTD you need to access the old VAT online service for agents, and change the VAT periods there.
Flat rate scheme
Where the subcontractor doesn’t charge VAT on his invoices under the reverse charge, it would be crazy to remain within the flat rate scheme, as that would require him to pay a flat rate of VAT on all sales invoices. Where the business has asked to leave the flat rate scheme from 30 September 2019, that request needs to be cancelled. We may be able to do this through the old VAT online service for Agents, but we will probably have to ring HMRC to get that request cancelled.
Written by the Tax Advice Network