Domestic Reverse Charge VAT Construction Industry

Question

I see that Sage V 26 will include a new VAT code T21 to handle this new system from1st October 2019. I understood that this reverse charge will apply to standard rated and reduced rate projects. As the amount of VAT to be accounted for has to be displayed on the invoice by the sub-contractor and processed on the VAT return by the main contractor how will one code deal with two different rates of VAT?

Ian C · Accepted Answer

Hi, 
 Thanks for using Sage City. 
 How will the tax code work? Under reverse charge the responsibility for paying VAT to HMRC moves from the subcontractor to the main contractor. In most cases this VAT will be recoverable for the main contractor. When you use the T21 tax code, you only need to enter the net amount, the VAT calculation for the VAT Return completes automatically. 
 Standard VAT 
 When a subcontractor uses tax code T21 on an invoice for their main contractor, Box 6 of the VAT Return, total value of sales excluding VAT, will be updated with the net amount of the sale. 
 When a main contractor uses T21 to record their purchase from the subcontractor the net value of the purchase will affect box 7 of the VAT Return, total value of purchases excluding VAT, and the VAT value will affect boxes 1 and 4 of the VAT Return. The VAT is paid and reclaimed on the same VAT Return, this is often termed Notional VAT. 
 VAT Cash Accounting 
 VAT Cash Accounting rules do not apply to reverse charge transactions. So where reverse charge applies and the T21 tax code is used, the values from the invoice or credit will update the VAT Return not the payment or receipt as would be expected under VAT Cash Accounting. 
 Flat Rate VAT 
 Flat Rate scheme rules do not apply to reverse charge transactions. If the subcontractor or main contractor uses the Flat Rate scheme, they should account for reverse charge transactions outside of the scheme using tax code T21. 
 Invoices and credit notes 
 If the T21 tax code is used then the invoice or credit note produced in sage 50cloud accounts will include the following text: 
 Invoice text - 'Customer to pay output tax of &pound;X to HMRC&rsquo; Credit note text - 'Customer to account for output tax of -&pound;X to HMRC' 
 You can read full details around CIS common questions here 
 If this has answered your question please click More > Verify Answer. 
 Regards, 
 Ian Sage UKI

Ian C · Answer

Hi Hilary, 
 v26 will come with one tax code (T21 @ 20%) but you'll have the option to create your own tax code and set it to be 5% if required. 
 If this has answered your question please click More > Verify Answer. 
 Regards, 
 Ian 
 Sage UKi

Sage 50 Accounts

Domestic Reverse Charge VAT Construction Industry

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