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The excitement of Making Tax Digital is almost out of the way. It’s time to turn our attention to the next installment for Sage 200. Continuing with the VAT theme, this one is specifically for those who report under the Construction Industry Scheme. This time next year, October 2020, the Domestic Reverse Charge will be implemented. Getting ahead of the game, Sage is already taking steps to ensure those who fall under the CIS scope, are ready. But what exactly is The Domestic Reverse Charge?
What is The Domestic Reverse Charge?
The Domestic Reverse Charge is another step by the Government to prevent ‘missing trader’ fraud; the theft of Value Added Tax from a government by organised crime gangs who exploit the way VAT is treated within multi-jurisdictional trading where the movement of goods between jurisdictions is VAT-free. The end goal is for HMRC to have greater visibility of the VAT movement within the Construction Industry. The introduction of the Reverse Charge is will change how VAT is accounted for, and by whom.
Who does The Domestic Reverse Charge apply to?
The new charge will affect those working in the construction industry who fall under the CIS umbrella. It will be applied when services are supplied/purchased, and when materials are supplied/purchased in conjunction with the services. Materials purchased individually do not fall under the reverse charge brief. Both customer and supplier must be registered for VAT in the UK, therefore the charge will not apply to consumers and end-users.
How to Prepare for The Domestic Reverse Charge?
The Domestic Reverse Charge is set to be introduced on the 1st October 2020, As suggested by HMRC, there are several areas that require consideration:
- Will the reverse charge affect your sales or purchases? Or will it affect both?
- Does your accounting software have the capability to deal with reverse charge? Do you need to upgrade? More information regarding Sage 200 is below.
- Are your employees aware of the imminent change? You will need to ensure they are comfortable with reverse charge and how to deal with it in your accounting software.
- Do you have any VAT registered customers? Will they be the end-user, or are they an intermediary? Consider reaching out to them for confirmation that the reverse charge will apply.
- Will any of the services you receive from other companies fall under the scope of the reverse charge? Will you need to review any contracts?
- How will the charge impact your cash flow?
Sage 200 Summer 2019 New Feature
The latest version of Sage 200 now has the capability to account for the reverse charge for both customers and suppliers. Within the VAT Rates form in Accounting System Manager, is the addition of two extra terms; CIS Reverse Charge Sales, and CIS Reverse Charge Purchases. This will not come already set up in your system, you will need to configure this manually. If you have problems configuring this, please see the below link Set up VAT Rates.
A few things will happen when using these new tax rates. They will affect various boxes on your return depending on whether you are the customer or supplier in the transaction. From a customer perspective, boxes 1, 4 and 7 on your UK VAT return, and T1 and T2 on your Irish VAT Return will be affected by using the CIS Reverse Charge Purchases rate. If you are the supplier, using the CIS Reverse Charge Sales rate will affect box 6 on your UK return and will have no effect on an Irish return. Please note, any transaction where the CIS reverse charge is applied, all other VAT rates much be 0%. You are unable to process a transaction in Sage where the CIS reverse charge combines with another rate greater than 0%; this will be flagged as an error.
Using these rates will also automatically include a note on the invoice or credit note, informing the recipient that the reverse charge is applicable. The note will appear in the footer of the layout and you can select what message is displayed from within the Invoice/Sop Settings.
For more information regarding the new charge and Sage 200, you can use the links below;
- Domestic reverse VAT charge for building and construction services
- CIS reverse charge – common questions
- Set up VAT rates
- VAT domestic reverse charge for construction: 22 things you need to know
Not using Sage 200? You can visit our website for more information – Sage 200 Software