DRC 6: Tips for cash flow management

Neil Warren explains how builders can cope with the cash flow challenges of the new DRC rules, whether VAT invoices can be split, and when to file monthly VAT returns.

16th Feb 2021
Independent VAT Consultant
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Working capital

The introduction of the domestic reverse charge (DRC) for builders will have a big impact on the working capital of many builders selling construction services.

For example, a builder using the cash accounting scheme who received £84,000 including VAT on 1 January 2021 will not have to pay the £14,000 of VAT to HMRC until 7 May, if he submits calendar VAT quarter returns.

But that will change on 1 March 2021 if the work is subject to the reverse charge, ie £70,000 will be paid by the customer without VAT. Is there still scope to charge some VAT to help the cash flow position of the seller?

Split labour and materials?

Could the builder raise separate sales invoices for each reverse charge job; one for labour (no VAT), and one for materials linked to the job (20% VAT)?

The answer is ‘no’ and HMRC’s guidance deals with this suggestion:

“If a customer places a single supply and fix order within the scope of the CIS with a supplier, the reverse charge will apply to the full value of the order even if the supplier issues separate invoices for the supply and fix elements,” (see HMRC guidance, para a('DOMCono"ll aies-re00 wiydOMCMRC guiell change on 1 Ma}) "p>But that ws. href="/accounchanswer0"/acpush(p>

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