Recently delayed but nevertheless still something that those working in the construction industry need to prepare for, the VAT Reverse Charge is set to impact how businesses will invoice their clients.
What is it?
The VAT Reverse Charge will entirely change the way that VAT is currently paid within a construction supply chain. It is being introduced as a way to tackle missing trader fraud that has plagued the industry for many years and costs HMRC an astounding £100 million each year.
From October next year VAT will only be charged to the end-customer within a chain (when there is no further supply of relevant construction services). All other businesses within the supply chain will simply calculate and state VAT on invoices as a paper exercise (noting that it is subject to the Reverse Charge).
This will impact not only the cashflow of those within a supply chain, but also how the invoicing will occur within a business. Companies must ensure that their accounting software has the capacity to allow for this change to occur, and that team members understand the Charge and how it works in practice.
Most construction businesses should already be aware of the changes, as they were set to be introduced earlier this month. However, shortly before it was set to come into force the government announced that the Charge had been put back to October 2020.
The delay came as a relief to both construction businesses themselves and industry bodies, who felt that inadequate preparation time would have a huge impact on the industry, and lead to many businesses facing significant struggles. Nevertheless, construction businesses should savour this additional time and ensure that every aspect of their business is fully prepared for what the introduction of the Charge will bring.
Understanding when this charge will apply will depend upon your answer to a number of questions including is your customer VAT registered? Are you supplying relevant construction services? Are they the end client? And many more.
Are you looking for more information on the VAT Reverse Charge? Contact the team at Zodeq today for more information.