The Construction Reverse Charge is being introduced in the UK with effect from 1 March 2021.
Until now the Reverse Charge has applied to a small minority of transactions. From 1 March 2021 Reverse Charge will apply to the Construction Industry.
This changes the way VAT is accounted for. Please note:
Before Reverse Charge Rules 1 March 2021
Subcontractor has primary responsibility for applying the correct VAT treatment to transactions.
Subcontractor has a cash-flow benefit from receiving payment for VAT and holding it until next VAT Return is due.
Subcontractor charges VAT to all customers.
After Reverse Charge Rules 1 March 2021
Contractor has primary responsibility for applying the correct VAT treatment to transactions.
Subcontractor loses the cash-flow benefit of VAT.
Contractor gains cash-flow benefit from not having to pay VAT to Subcontractor.
Subcontractor charges VAT only to customers who are not VAT registered or who are exempt from operating the Construction Reverse Charge (but Contractor is responsible for deciding whether Reverse Charge applies).
Changes to VAT returns:
VAT Return - For Sales with Reverse Charge |
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Summary Sales/Outputs | Before 1 March 2021 | After 1 March 2021 | Note |
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Box 1 | VAT due on outputs | 200 | 0 |
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Box 2 | VAT on acquisitions |
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Box 3 | Total VAT due | 200 | 0 |
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Box 4 | Input VAT reclaimable |
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Box 5 | VAT (payable)/reclaimable | 200 | 0 | After £0 Payable |
Box 6 | Sales excluding VAT | 1,000 | 1,000 |
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Box 7 | Purchases excluding VAT |
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Box 8 | Goods supplied to EU |
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Box 9 | Goods acquired from EU |
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VAT Return - For Purchases with Reverse Charge |
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Summary Purchases/Inputs | Before 1 March 2021 | After 1March 2021 |
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Box 1 | VAT due on outputs | 0 | 200 | Output accounted for |
Box 2 | VAT on acquisitions |
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Box 3 | Total VAT due | 0 | 200 |
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Box 4 | Input VAT reclaimable | 200 | 200 |
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Box 5 | VAT (payable)/reclaimable | 200 | 0 | After £0 Payable |
Box 6 | Sales excluding VAT |
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Box 7 | Purchases excluding VAT | 1,000 | 1,000 |
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Box 8 | Goods supplied to EU |
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Box 9 | Goods acquired from EU |
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A significant number of validation enhancements are now available in Coins ERP+ (with latest service packs) to help ensure that the Construction Reverse Charge is applied appropriately. These will assist users in selecting appropriate VAT Codes so that they do use Construction Reverse Charge VAT codes when they should and when they should not. Using Coins ERP+ correctly for VAT Reverse Charge will:
Assist with Transition.
Help Staff get VAT Treatment Correct.
Prevent Errors at Transaction Input.
Reduce Risk of Mistakes.
Increase Compliance.
Avoid Disputes/Fines.