CPA Bulletin

32 CPA Bulletin > February/March 2021 www.cpa.uk.net Legal NEWS LEGAL: 1 The reverse (inverse) charging applies solely to construction industry services, and only those which are business-to-business supplies - whether VAT is standard or reduced rated - and the recipient of the services is a VAT-registered business. The reverse charging is not applicable to zero-rated services, or where there is no Construction Industry Scheme (CIS) report. However, where there are mixed services supplied to the customer, and any element is a reverse charge construction service, then the whole supply is subject to the reverse charge. One key point to note is that end users (described as a business not intending to onward supply the services as part of their business) or intermediary suppliers (described in the guidance as VAT and CIS registered businesses connected or linked to end users), will need to give prior written confirmation on their status to service suppliers, to ensure the reverse charge regime does not apply. The question then is: howdoes any of this affect plant-hire businesses? The supply of plant without an operator, on a self-drive basis, is outside the scope of CIS (unless supplied along with other qualifying construction services), and so the new rules will not apply, i.e. invoicing continues as it currently is. However, should an operator be supplied with the item of plant, then this would fall within CIS, and so reverse charging would apply when the changes come into effect. For example, a mobile crane company supplied a machine and operator to a contractor for £10,000 + £2,000 VAT. The contractor is not an end user, and this is a CIS service so that the new rules will apply. From 1st March 2021, only £10,000 would be invoiced to the contractor, with the contractor accounting for both his input tax (£2,000) and the crane hire company’s output tax (£2,000). The main downside that has been identified in the industry is that suppliers will often have used the VAT received on payments as short-term financing for working capital. Given that, where a mixed supply includes a reversed charged element, the whole supply will be reverse charged, and the impact on businesses could be significant. The golden rule is that suppliers of plant for hire with an operator should ask their customer for an end user confirmation statement. If this is made available, Reverse VAT does not apply, otherwise it does (subject to the first four questions in the flowchart on the right) and you should proceed accordingly. Where the service is reverse charged, the supplier must raise an invoice as usual, but must indicate on the face of the invoice that the supply is reverse charged. That will involve including one of these statements: a. Reverse charge: VAT Act 1994 section 55A applies; or, b. Reverse charge: section 55A VATA 94 applies; or, c. Reverse charge: customer to pay VAT to HMRC. In these circumstances the supplier will put no output tax in box 1 of their VAT return but record the value of the sale in box 6. The customer will put the value of the output tax in box 1, but no entry in box 6, but put the value of the input tax in box 4 and put the value of the net purchase in box 7. HMRC has produced a reasonably helpful decision tree and this is reproduced below. Reverse (Inverse) VAT in the Construction Industry As a reminder tomembers, from1st March 2021, Her Majesty’s Revenue and Customs (HMRC) will implement the reverse (inverse) charging of VAT. HMRC has published some useful guidance which can be found here at: https://www.gov.uk/guidance/vat-domestic-reverse-charge-for- building-and-construction-services If you require any assistance with reverse charging for VAT or indeed any other matters, please do not hesitate to contact Barnes Roffe accountants. Contact Mario Cientanni on 01322 275335 or email m.cientanni@barnesroffe.com