Changes to VAT in the Construction Sector - Update your accounting software!

Changes to VAT in the Construction Sector - Update your accounting software!

You may have seen from our recent iNews that the new Construction Industry Reverse Charge came into effect on 1 March 2021. You can find a recap of our article here.

Understanding how this works, however, is only part of it. You also need to ensure that your accounting software is set up to present these correctly on your monthly or quarterly VAT return.

Xero

Xero have introduced new Domestic Reverse Charge Tax Codes and, as Xero is a wholly cloud product, these new rates are automatically made available within the software.

The new tax codes, which are to be selected when raising or entering applicable sales or purchase invoices, are as follows:

  • Domestic Reverse Charge at 20% (VAT on Expenses)
  • Domestic Reverse Charge at 20% (VAT on Income)
  • Domestic Reverse Charge at 5% (VAT on Expenses)
  • Domestic Reverse Charge at 5% (VAT on Income)

You can activate these new tax codes in Accounting > Advanced > Tax Rates > Add Domestic Reverse Charge Tax Rates.

If you provide services that fall under the Domestic Reverse Charge, you need to ensure that your sales invoice carries wording which states that the Reverse Charge applies. Examples include:

  • Reverse charge: VAT Act 1994 Section 55A applies; or
  • Reverse charge: S55A VATA 94 applies; or
  • Reverse charge: Customer to pay the VAT to HMRC.

Our recommendation is to set up an invoice template which you can use for sales where the Domestic Reverse Charge applies. You can do this in Settings > Invoice Settings > New Branding Theme > include the detail in the Terms & Payments Advice box.

Xero have produced a pre-recorded webinar which you can watch here to demonstrate how this works.

Sage Accounting (Sage Business Cloud and Sage One)

Sage Accounting, formerly known as Sage Business Cloud and Sage One, have introduced a Use VAT Reverse Charge check box to use when entering applicable Sales and Purchase invoices. This Use VAT Reverse Charge check box will be automatically made available in the software on 1 March 2021.

To use this check box, you must first activate the CIS feature within Sage Accounting. You can find this in Settings > Construction Industry Scheme.

You then need to let Sage Accounting know which contacts the Domestic Reverse Charge relates to. You can do this in Contacts > Customers / Suppliers > Account Details > select Reverse Charge VAT.

The Use VAT Reverse Charge check box will then be available when you are raising or entering sales or purchase invoices to / from contacts to whom the Reverse Charge relates.

Sage have produced a pre-recorded webinar which you can watch for more information here.

Sage 50cloud Accounts

Sage have introduced new tax codes into their Sage 50cloud Accounts v26 and above.

The new tax codes, which are to be selected when raising or entering applicable sales or purchase invoices, are as follows:

  • T21 to be used where CIS Reverse Charge Standard Rate applies
  • T26 to be used where CIS Reverse Charge Reduced Rate applies

If tax code T21 or T26 is already in use, the next available tax code is used.

You can check your new tax codes in Settings > Configuration > Tax Codes.

If you are not using Sage50cloud Accounts v26 or above, you can either download and install the latest version of Sage 50cloud Accounts, or manually create new Reverse Charge Tax Codes.

To manually create new Reverse Charge Tax Codes, select Settings > Configuration > Tax Codes. Select a code that is not in use and press Edit. Enter the new rate and select the option to Include on VAT return. Your new standard rate Reverse Charge Tax Code should be linked to T1 and flagged as Reverse Charge. Your new reduced rate Reverse Charge Tax Code should be linked to T5 and flagged as Reverse Charge.

Sage have produced a pre-recorded webinar which you can watch for more information here.

Other software

If you use other software, it is highly likely that they will be introducing their own VAT rates which you can use. We recommend that you contact them directly to ask.

If you would like any additional information, help and assistance with updating your accounting software then please do not hesitate to get in touch.

 

Sarah Smith

Digital Services Manager

direct dial: 01942 292527

email: sarah.smith@jsllp.co.uk

 

 

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