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Domestic Reverse Charge for VAT and CIS registered businesses

On the 1 March 2021 new tax rates were introduced by HMRC for CIS and VAT registered businesses.  This means that new rules apply when sending, receiving, and recording VAT invoices.  To find out when and how these rules apply check out our sister company’s article here.

What’s changes do I need to make to my bookkeeping?

In terms of software this means you will need to ensure your chosen software can record these transactions properly, you may need to change the settings to account for these new requirements. 

Subcontractors…

From a practical point of view you will need to ensure any invoice you send out to your customers not only includes the usual VAT invoice requirements, but also the new wording relating to domestic reverse charge at the given rate.  You will not actually charge VAT on your invoices, and your customer (the contractor) will not pay it to you either.  They will still deduct CIS from your invoice before paying you.

When submitting your VAT return you will need to ensure that the VAT amount is not included in box 1 of your vat return, this will be recorded instead by your contractor.  You should however ensure the net sales figure is included in the box 6 on your VAT return.

Contractors…

When receiving an invoice from your subcontractor you will no longer be paying the VAT.  You will only be paying the net amount less any CIS you have deducted. 

When submitting your VAT return, you will need to ensure that you record that VAT that you haven’t actually paid at the given rate in box 1 and box 4 of your vat return, as well as box 7… but not box 6!  Confused yet?

Don’t panic, your software can most likely handle this new tax rate with a few tweaks to your settings. 

We have some “how to” video guides on our YouTube Channel. 

You can also join our Facebook page or group to get helpful tips. 

Or if you would like 1-2-1 support contact our team who are ready to offer guidance on how to set up your Xero, Sage or FreeAgent software for Domestic reverse Charge VAT for CIS registered businesses.