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Domestic Reverse Charge 2: Sales invoices and VAT returns

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Neil Warren sets out simple steps to getting invoices, credit notes and VAT returns right, when applying the domestic reverse charge in the construction industry.  

19th Jan 2021
Independent VAT Consultant
Columnist
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A challenge with the new domestic reverse charge rules being introduced into the construction industry on 1 March 2021 is not to over-complicate the accounting issues.

All that is happening is that VAT is not being charged by a supplier on a qualifying job subject to 5% or 20% VAT, and the customer includes the VAT in box 1 of their own return instead.

Plumber Pete is doing work for Contractor Ltd which is subject to the new reverse charge rules. The value of the work is £10,000 plus 20% VAT.

Pete will invoice the company for £10,000 with no VAT, and record the sale as an output in box 6 of his next VAT return. If he uses the cash accounting scheme, the box 6 entry will be based on the payment date rather than invoice date.

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Replies (3)

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By stuartrelf
03rd Feb 2021 09:52

Really useful reading the 4 part DRC analysis. One question my client (who will be affected by DRC) asked was they issue sales invoices in February and won't get paid until the end of March. They are cash accounting for VAT so are there transition rules for invoices issued pre 1 March but paid afterwards?

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David Ross
By davidross
05th Feb 2021 12:56

Dear Neil,

Thank you for this helpful article. Can you advise - does this system bounce clients out of Cash Accounting?

I spent the usual half hour waiting to speak to the VAT Helpline about the advice given in the technical guide to the Domestic Reverse Charge for Construction.

https://www.gov.uk/guidance/vat-reverse-charge-technical-guide#completin...

At point 11 it says "You cannot use the VAT Cash Accounting Scheme for supplies of services that are subject to the reverse charge."

But at point 12 it says "Some businesses in the construction sector prefer to account for their VAT on the basis of payments made and received ....... All you need to do is include the value of the sale in your VAT Return when you receive the payment."

The call handler could not tell me the difference between Cash Accounting and including the sale when you get the money. He actually said do what you like and if challenged tell them what I said !!

On that basis it seems to be business as normal for Cash Accounting, and point 11 is irrelevant (though perhaps a useful nerd on this forum can highlight a technical distinction, but if such a distinction were real then yes, clients WOULD be forced out of Cash Accounting, and that would be a Big Thing)

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Replying to davidross:
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By Orsita
10th Mar 2021 14:13

I had read and was wondering the same regarding section 11 as you David.

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