Why is this happening?
This is a Government requirement, HMRC need to respond to sustained criminal attacks - stealing public revenue through missing Trader fraud.
The changes will help to prevent losses estimated at £100 million per year from this for of fraud.
Reverse charge for construction services is common across EU Member States - currently in place in 18 countries, including all other major economies.
Date of change: 1st October 2019, delayed until 1st March 2021
Who will this change effect?
Essentially, any company that is registered with the Construction Industry Scheme (CIS), and any company that is invoicing a client that is not CIS registered must charge VAT as normal.
Certain services will be excluded from the scheme.
Overview of changes to be made
A Sales Customer Record CIS checkbox.
2 new vat types (5% and 20%).
New Sales and SOP Invoice Templates.
Changes to transactional screens within both the Purchase and Sales Ledgers.
Updates to necessary reports.
Update to HMRC submission links.
Further information is available from the UK government website about when you must use the VAT reverse charge for building and construction services
Before Change: Normal VAT
Subcontractor Invoices £1000 plus £200 VAT.
Contractor pays Subcontractor £1200.
Subcontractor enters £200 VAT to HMRC.
Contractor enters £200 Input Tax on VAT Return.
HMRC refunds £200 to Contractor (assuming the VAT is fully recoverable).
After Change: Reverse charge VAT
Subcontractor Invoices £1000 without VAT.
Contractor pays Subcontractor £1000.
No VAT payable by Subcontractor to HMRC.
Contractor enters £200 Output tax on VAT Return.
Contractor enters £200 Input Tax on VAT Return.
No VAT payable/recoverable by Contractor to/from HMRC (assuming the VAT is fully recoverable).