For use from March 2021

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Integrity Software Systems Ltd

Web: integrity-software.net | Company Reg No. 3410598

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Reverse Charge VAT for Building

and Construction Services

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IMPORTANT INFORMATION

• From 1st_{March 2021 a VAT Reverse Charge will apply to services supplied by one}

construction industry business to another. The receiving business will have to account for VAT on purchases covered by the reverse charge.

• Invoices dated up to 28th_{February 2021 will request VAT and can be paid with VAT}

• Invoices dated from 1st_{March 2021 should not show VAT in the amount payable columns}

• VAT invoices received subject to Reverse Charge dated on or after 1st_{March 2021 that}

include VAT in the amount payable should be returned requesting a replacement invoice stating that Reverse Charge VAT to be accounted for by the customer

• Staged or interim payments made after an application for payment, when a QS has certified work, will be governed by the date the payment is certified:

o Staged or interim payments certified up to or on 28th_{February 2021 and paid before}

1st_{June 2021 will have VAT added, and you will be responsible for recovering that VAT}

from HMRC

o Payments certified on or after 1st_{March 2021 will be subject to Reverse Charge, and}

not be paid with VAT

• Retention released on or after 1st_{March 2021 will also be subject to Reverse Charge}

• We have a provided a utility to update the VAT code on Subcontractor Orders, swapping out the Standard Rate and Reduced Rate VAT codes for the new Reverse Charge VAT Codes, where CIS is applicable

• Manual adjustments may be required on some orders or customers, subject to them satisfying HMRC guidelines

• Invoices & Certificates dated prior to 1st_{March 2021 that remain unpaid at 31}st_{May 2021}

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1. Overview of Reverse Charge VAT and System Changes

Reverse Charge VAT

This document explains the changes made in Evolution M in order to provide the functionality as described in the HMRC’s Reverse Charge VAT for Building and Construction services legislation, coming into effect from 1st March 2021.

Businesses involved in buying and selling construction services will be affected for standard or reduced rated supplies (zero-rated supplies are not affected). This is an anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer. For certain supplies of construction services, the customer will now be liable to account for the VAT, rather than the supplier (hence the term ‘reverse charge’). The reverse charge will apply through the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS), up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services - these businesses are referred to as ‘end users’.

The reverse charge will exclude businesses that supply specified services to connected parties within a corporate group structure, or with a common interest in land. In these circumstances, the supplies in question will then revert to normal VAT accounting rules.

The reverse charge will include goods, where those goods are supplied with the specified services and therefore could apply to both the current standard rate and reduced rate of vat.

Please refer to this link for more details for further information:

https://www.gov.uk/government/publications/vat-reverse-charge-for-building-and-construction-services/vat-reverse-charge-for-building-and-construction-services

Summary of Changes

• VAT Code Maintenance has been changed to allow creation of new Reverse Charge VAT codes • A new ‘VAT Code Change’ utility for Reverse Charge has been created to allow the VAT codes presently on Subcontractor Orders to be automatically changed to the appropriate Reverse Charge rate, where applicable

• Enhanced auditing in Subcontract Order Maintenance to track changes to the VAT code on work categories

• Subcontractor Certificates have been enhanced to print HMRC approved Reverse Charge messages to replace the previous authenticated receipt/self-bill VAT messages

• Sales Invoices have been enhanced to print a Reverse Charge message where a Reverse Charge VAT code is found. It is possible to amend the wording of this message if required.

Preparing for Reverse Charge VAT

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Now Consider the impact of Reverse Charge VAT on your business. Think about notifying your Subcontractors and validating your customer’s status – are they a Principal contractor or an end-user?

February 2021 Create the new VAT Codes for Reverse Charge VAT.

March 2021 Update Customers / Subcontractor Orders with new Reverse Charge VAT codes.

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2. SETTING UP THE SYSTEM

Reverse Charge VAT Code Setup

VAT Code Maintenance has been enhanced to allow the creation of the new Reverse Charge VAT codes. Subject to the types of work that you or your Subcontractors undertake, it may be necessary to create a Reverse Charge VAT Code for Reduced Rate as well as Standard Rate.

To create a new VAT Code, select VAT Code Maintenance from the System Controls menu. This can found within the Utilities / System Controls ledger:

You will need to create a Reverse Charge VAT code for 20% - an example of how it should be setup is on the next page. Note that the Rate should be 0.00 and Reverse Charge should be 20.00 (the settings for the VAT Control Input and Output nominal codes are examples only and your nominals may differ).

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2.2 VAT Code Change Utility for Reverse Charge

*** DO NOT DO THIS UNTIL 1

ST

_{MARCH 2021 *}**

After creating the new VAT Codes for Reverse Change it will be necessary to change the VAT Codes on the Work Category lines of each applicable Subcontractor Order. Whilst this could be done manually, Integrity Software have created a new utility to update the order lines for you.

2.2.1 Defaulting the New VAT Code on existing Orders

*** DO NOT DO THIS UNTIL 1

ST

_{MARCH 2021 *}**

In order to automatically default the VAT Code on each applicable Work Category line on each Subcontractor Order, firstly select VAT Code Maintenance from the System Controls menu of Utilities

/ System Controls:

Without selecting a VAT Code, click the ‘VAT Code Change Utility for UK Reverse Charge’ button as indicated above.

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After clicking this button, the following will appear:

You’ll need to tick the ‘Subcontractor Orders’, then select the Current VAT Code (usually Standard Rate) and then the new Replacement Reverse Charge VAT Code in the box underneath (this will be the one you previously created, as per section 2.1). Click ‘OK’ to continue. The Work Category lines will then be updated with the Replacement Reverse Charge VAT Code selected.

This utility should be run once for Standard Rate, and again for Reduced Rate, if applicable. Only Orders that are not for CIS Exempt Subcontractors, or the Order is not Tax Exempt, will be updated. Orders that are exempt from Reverse Charge should be checked manually, subject to HMRC guidance. Running this utility is optional, and if you have any concerns we would advise you to take guidance from HMRC.

2.2.2 Defaulting the New VAT Code on new Orders

Having created the new VAT code you will then need to change the default VAT Code in Work Category Maintenance. Repeat this for each Work Category that is set to Standard Rate or Reduced Rate.

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2.2.3 Enhanced Audit for VAT Changes

To assist with the tracking of changes to VAT treatment, there is a new ‘Audit’ button in Subcontractor

Order Maintenance on the Work Categories tab.

The new button, highlighted below, will report upon the creation and maintenance of Work Categories on an Order:

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2.3 Changes to Certificate and Sales Invoicing Prints

Changes have been made to the wording of Subcontractor Certificates and Sales Invoices printed by Evolution M if a transaction on the document is subject to Reverse Charge VAT. This happens automatically.

2.3.1 Changes to Subcontractor Certificates

Subcontract Certificate Print will now automatically replace the Authenticated Receipt or Self Billing VAT messages, if Reverse Charge is applicable, with text from HMRC guidelines.

For Authenticated Receipts:

Reverse charge

As the UK customer we will pay the VAT due to HMRC VAT Registration No. 123 456789

For Self-Bill:

Self-Billed Tax Invoice

Reverse charge

As the UK customer we will pay the VAT due to HMRC Your VAT reference 123 456789

2.3.2 Changes to Sales Invoicing

Where a transaction on a Sales Invoice is subject to Reverse Charge, a message will automatically print on the invoice, as follows:

REVERSE CHARGE VAT ON THIS SUPPLY TO BE ACCOUNTED FOR BY YOU, THE CUSTOMER, AT THE RATE(s) SHOWN ABOVE’.

It is possible to change the wording of the above message. Please contact the Support Team for further information.

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3. VAT Report/Return

Subcontractor and Sales postings will automatically account correctly where the new Reverse Change VAT Codes are used.

For sales that are subject to Reverse Charge, only the value of sales in Box 6 is shown, no tax is recorded in Box 1.

Subcontractor Payments that are subject to Reverse Charge will record the value of Purchases in Net Purchases And Input (Box 7) and will record the VAT value both in VAT Reclaimed On Inputs (Box 4) and VAT Due On Outputs (Box 1):

For use from March 2021

Page 1

Construction

Management

Solutions

Reverse Charge VAT for Building

and Construction Services

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Construction

Management

Solutions

CONTENTS

Page 3

Construction

Management

Solutions

IMPORTANT INFORMATION

Page 4

Construction

Management

Solutions

1. Overview of Reverse Charge VAT and System Changes

Reverse Charge VAT

Summary of Changes

Preparing for Reverse Charge VAT

Page 5

Construction

Management

Solutions

Page 6

Construction

Management

Solutions

2. SETTING UP THE SYSTEM

Reverse Charge VAT Code Setup

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Construction

Management

Solutions

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Construction

Management

Solutions

2.2

VAT Code Change Utility for Reverse Charge

*** DO NOT DO THIS UNTIL 1

MARCH 2021 ***

2.2.1 Defaulting the New VAT Code on existing Orders

*** DO NOT DO THIS UNTIL 1

MARCH 2021 ***

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2.2.2 Defaulting the New VAT Code on new Orders

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2.2.3 Enhanced Audit for VAT Changes

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2.3

Changes to Certificate and Sales Invoicing Prints

2.3.1 Changes to Subcontractor Certificates

2.3.2 Changes to Sales Invoicing

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3. VAT Report/Return

_{MARCH 2021 *}**

_{MARCH 2021 *}**