Monthly Archives: June 2019

Construction Industry Scheme VAT Reverse Charge

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Drummond Laurie Chartered AccountantsHMRC have recently announced the introduction of a VAT Reverse Charge with regards to the Construction Industry. Whilst this term is new territory for the construction industry, this VAT treatment is already resident within other industries such as mobile phone and electricity.

Three important questions at the tip of our tongue:

  • Who does this apply to? This only applies to supplies of building and construction services where your customer is registered for both VAT and CIS and these supplies are either standard rated or reduced rated.
  • When does this apply? These new VAT rules are due to come into force in October 2019.
  • Why?! HMRC believe that the introduction of these new VAT rules will significantly reduce the impact and existence of “missing trader fraud”. In short, this is the process of events whereby a supply chain is set up, with various intermediaries, and VAT is collected with no intent to pass this over to HMRC. The VAT Reverse charge is intended to prevent this by ensuring that VAT is paid over and reclaimed at the same point, ensuring HMRC do not lose out.

Two initial essential parts to this: establishing if your customer is the end user of your services and establishing if your customer is VAT and CIS registered.

If your customer is both VAT and CIS registered, and they are not the end user of the services provided, VAT reverse charge scheme will apply. Once under this VAT arrangement, you will consequently omit charging VAT on your invoice. A tax shift mechanism will take place and effectively your customer will adopt the “collection of output tax” role. As a result, the customer will account for both output and input VAT on their VAT Return. On the other hand, where the customer of the supply of construction services has confirmed that they are instead the “end user” of these services, the VAT reverse charge will not apply and VAT will be charged in the usual way.

VAT Reversal Charge will likely always apply in situations where there is Business to Business supplies of construction services between VAT registered businesses and the customer’s activities then provide an ongoing supply of the same construction and building services to another user.

How does this work practically?

Establishing Customer – Supplying services in the realms of CIS requires you to establish the position of your customer. Your customer is required to confirm, in writing, that they are the end user of the construction services to trigger the treatment of VAT under the normal method. Penalties may be due where the VAT Reversal Charge is not implemented correctly, however, HMRC have confirmed that there will be a 6 month period, following implementation date, where errors will be looked at more lightly.

Administrative Changes – Where the VAT Reverse Charge applies, declaration must be made, in words, on your invoices that this VAT treatment has been applied. This may require adjustments to systems which generate the invoices.

Cash Flow Considerations – Under the VAT Reversal Charge, the supplier passes the responsibility of charging VAT to the customer. As a result, the supplier charges and receives only the net amount.

Suppliers must consider the cash flow impact of receiving only the net amount and losing out on the benefit of retaining the output VAT for the time period prior to paying this over to HMRC.

HMRC have provided initial guidance on this which can be found at www.gov.uk/government/publications/vat-reverse-charge

Further announcements and guidance are expected from HMRC over the coming months.

Please do not hesitate to contact your usual Drummond Laurie contact to discuss further.

 

 

 

It’s nearly the 2019 Royal Highland Show!

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We are just days away from one of the UK’s premier agricultural shows, the 2019 Royal Highland Show.Drummond Laurie Chartered Accountants

From Thursday 20th June to Sunday 23rd June the Royal Highland Centre at Ingliston, Edinburgh will open its doors to the 179th Royal Highland Show and showcase the best in farming, food and rural life. There is something for everyone at the show.

Some of the team from Drummond Laurie will be going to the show and are counting down the days till they “meet, touch, smell, taste and take home the best in the country”.

We would like to wish all of clients who are competing at the show the best of luck.

More details about the show can be found at www.royalhighlandshow.org

Should I be registered for VAT?

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When do you need to register for VAT?Drummond Laurie Chartered Accountants

The questions you need to ask yourself are:

  1. Has my VAT taxable turnover exceeded the current VAT registration threshold (which is currently £85,000) over the last 12 months*?
  2. Is my VAT taxable turnover expected to exceed the current VAT registration threshold in the next 30 days?

If the answer is yes to either of the above, then you do need to register with HM Revenue & Customs (HMRC) for VAT.

*This is a rolling 12 month period rather than a fixed 12 month period and thus can be any period.

What are the timescales for registering?

If you exceeded the VAT registration threshold in the last 12 months:

  • You need to register within 30 days of the end of the month in which you went over the registration threshold.
  • You will be treated as being VAT registered from the first day of the second month after you exceeded the threshold.
  • For example if your VAT taxable turnover was £90,000 between 16th May 2018 – 15th May 2019, you would need to register for VAT by the 30th June 2019.  Your effective date for registration will be 1st July 2019.

If you expect to exceed the VAT registration threshold in the next 30 days:

  • You need to register by the end of that 30 day period.
  • You will be treated as being VAT registered from the date you realised, not the date your turnover went over the threshold.
  • For example if on the 1st May you realise that your VAT taxable turnover in the next 30 days will exceed the VAT registration threshold, you will have until the 30th May to advise HMRC. Your effective date for registration would be the 1st May.

It is important to note that failure to register for VAT on time will potentially result in penalties.

You will also have to pay the VAT on what you owe from when you should have registered.

Are there any exceptions?

If you answered yes to either of the questions above, but expect your VAT taxable turnover to fall below the current de-registration threshold (which is currently £83,000) in the next 12 months you can apply to HMRC for a registration exception. This is on the basis that your VAT taxable turnover only goes over the threshold on a temporary basis. It is important to note that HMRC ultimately makes the decision as to whether or not you need to register for VAT.

What do I do before I get my VAT registration number?

You need to start charging VAT and include this on your invoices, although this cannot be shown separately. A statement should be added on the invoice advising that an application has been made for VAT registration and a VAT invoice will be issued as soon as a VAT number has been allocated.

VAT of course is payable on this period.

Key VAT responsibilities

From your effective date of registration you must:

  1. Charge the correct amount of VAT
  2. Keep VAT records
  3. Submit VAT returns
  4. Pay any VAT due to HMRC
  5. Comply with Making Tax Digital for VAT rules, if your VAT taxable turnover exceeds £85,000.

At Drummond Laurie we are always here to help and if you would like to know more about the VAT or other services we offer, please do not hesitate to get in touch., email adviser@drummondlaurie.co.uk or call us on 01324 441250.

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