So, how does the domestic reverse charge work?:
Effect on VAT Returns for sub-contractors: Sub-contractors must not enter any output tax (VAT on sales) in box 1 of the VAT Return in respect of sales to which the domestic reverse charge applies, but must enter the value of the net sales in box 6.
The HMRC has created flowcharts that give you a good overview of how the VAT domestic reverse charges system works, depending on whether you’re a buyer or a supplier in the chain. [You can view these here] (https://www.gov.uk/guidance/vat-reverse-charge-technical-guide#flowcharts)
Talk to us about the VAT reverse charge
As a subcontractor, you’re likely to experience cashflow pressures from the domestic reverse charge system, and that’s bad news for the financial health of your business.
You can no longer put the VAT you’ve collected into your business account and use that to aid your cashflow until it’s paid over as part of the normal VAT cycle. At the same time, affected contractors will no longer need to fund the VAT paid to subcontractors and then reclaim this through their VAT returns later.
As you can see, this is significantly different from the way most businesses deal with VAT, and your bookkeeping and invoicing systems will need to handle this new system. If you need assistance with this, please do contact us and we’ll walk you through the VAT reverse charge requirements.
Get in touch in you are unsure about any aspects of the VAT reverse charge.
Unit 103, Milton Keynes Business Centre,
Foxhunter Drive, Milton Keynes,
Buckinghamshire, MK14 6GD
Bidwell Accountancy