VAT Domestic Reverse Charge

In this video I take a look at the new VAT Domestic Charge for supply of construction industry services which takes effect from 1st March 2021.
I explain what the Domestic Reverse Charge is, why it is being introduced and then I take you step by step through what you need to do in Xero.
Even if you are not a Xero user, you should find the video helpful.
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📘 LINKS REFERRED TO IN THE VIDEO 📘
HMRC - detailed explanation
www.gov.uk/gui...
HMRC - technical guide (if you've got the time or inclination)
www.gov.uk/gui...
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[@dipaksahani7796]

Thanku so much mam. For wonderful explanation about DRC vat, I'm your big time fan.

[@XUSolutions]

You're welcome :-)

[@tonia5364]

Amazing video! Thank you for the effort put into sharing this knowledge :)

[@benthompson4641]

Another brilliant video. Great refresher!

[@XUSolutions]

😊

[@smallbackgardenplot7273]

Thank you so much Marion your help is very much appreciated 😊

[@XUSolutions]

You’re welcome Lisa

[@tonylondon10]

Thanks a lot for your videos Marion! They are really really helpful! Thank you!!!

[@XUSolutions]

Always happy to help Tony :-)

[@kazmi-ej5uz]

Very useful. Thanks for explaining in easiest way.

[@XUSolutions]

You are welcome

[@shobhabu]

Thanks I m learning everyday from your video ,blessing

[@XUSolutions]

You are so welcome

[@philsbbs]

thanks for a nice clear and easy to follow video.

[@XUSolutions]

That’s what I aim for, so thanks for letting me know.

[@yvettemitchell7647]

Thanks so much for this, incredibly informative and has helped me fully understand!! The HMRC website was not helping at all, I was pulling my hair out!

[@XUSolutions]

Ah sometimes HMRC really tests us as humans!

[@heaterlight6039]

please make a complete video on vat return & submission of vat report. Thanks a lot for sharing a nice video.

[@XUSolutions]

There’s a couple of videos on VAT returns. But I’m restricted to using demo data so it’s hard to show the full experience.

[@rajan9651]

Perfectly explained! Thanks. It makes perfect sense. My only query after watching was, originally under VAT rules, they would have been paid £200 and the Cheery construction would have received £200 without the VAT. With CIS, they are only receiving £160. However, I see a simple fix for this would be to charge £250 which will ensure they achieve £200 sales. Thanks.

[@vanessabarrow2565]

Hi, I have a quick question re the DRC in Sales. If Berty Builder had purchaed materials would these be subject to the DRC to his customer Cheery Construction? And if so would that be coded to 310 COG? And finally on Berty Builders VAT - could he claim the VAT back on these supplies? Thank you in advance :)

[@samlyon3935]

Do you know how you should log a sub contractors invoice who is part of the CIS scheme however they are registered as gross? thanks

[@patricias5402]

A subby is in a DRC chain, he has purchased materials for DRC job(all subject to VAT). Can he reclaim the VAT on said materials? Or does he raise sales invoice to contractor for 100% gross amount of materials? And contractor reclaims VAT on their return as per subbys sales invoice?

[@edetnduoyo2764]

Thanks for useful information. What happens where the subcontract is on a flat rate of say 9%. With the new rule they seem to loose out. On that little cash flow advantage. In term of VAT Return how do we approach or show the situation on the form.

[@salmanlohiya8755]

Great work

[@ewakoziel5886]

Very useful video, thank you. Does a contractor apply VAT reverse charge to their sales invoices as well?

[@toniluong9311]

Hi Marion, I've just taken on subcontractor - he is CIS registered but not VAT registered. His labour for this month is £350 and materials £200 - how is this entered? Do I still put in the VAT rate CIS reverse charge 20%. I'm confused because he is not VAT registered. Thanks

[@ellieosullivan4834]

This is exactly what I needed thank you. I do have one question, if the labour and materials are seperated out, how does that work in Xero? Do you put the VAT on materials part as the VAT reverse charge too?

[@XUSolutions]

Yes the reverse charge can apply to materials as well if they are part of the same service. You need to refer to HMRC to confirm (which is not the easiest website to make sense of) but if you go to item 7. on this article it should help www.gov.uk/guidance/vat-reverse-charge-technical-guide

[@ellieosullivan4834]

@@XUSolutions Brilliant thank you. Haha yeah that is very true! I will have a look the article, thank you for your help :)

[@marvinnova1553]

You all probably dont care at all but does someone know of a trick to log back into an Instagram account? I somehow lost the login password. I would appreciate any help you can give me.

[@cairomarcellus977]

@Marvin Nova Instablaster :)

[@marvinnova1553]

@Cairo Marcellus I really appreciate your reply. I got to the site through google and Im waiting for the hacking stuff atm. Seems to take a while so I will reply here later with my results.

[@sshteve]

Hi, I'm a joinery manufacturer who mainly just works in the workshop but sometimes we supply and fit. We do work for the public and builders. We're not CIS registered but are VAT registered. Two questions, 1) Should I be CIS registered? 2) Does the reverse charge VAT apply to me? I've got one builder who is asking me to not charge him the VAT but the fact that I'm not CIS reregistered leads me to believe that I should carry on as normal.

[@XUSolutions]

I would think it’s yes and yes but do you have an accountant who can advise you? Here’s some information from HMRC www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14020

[@blistrz6036]

Thank you for this information! So the amount due for payment to Bertie is £160, but Bertie will declare £200 as sales in the VAT Return. Is this because Bertie will get back his CIS contribution?

[@josephbarratt7093]

I don’t think he gets his CIS deduction back as it’s just a pre payment of income tax at source like PAYE. Another way to stop Bertie not paying his tax. He will input it as 200 but also in his annual return he will input tax already paid so he won’t have to pay it at the end of the financial year.

[@DKZshimi]

Very helpful! thank you

[@XUSolutions]

You’re welcome

[@pietkaify]

How in earth do I get the vat back on the materials I purchase. If I'm working in behalf of another company. 1/3K is a lot to be held per month until it can be claimed back. Be far easier to increase markup on such materials.

[@XUSolutions]

Are you a VAT registered business?

[@southeastglassglazingltd3545]

My question exactly. Although as a VAT registered business, "technically" from my understanding you will not loose out in the long run. You just won't see anything back until your VAT return. What is hugely affected is CASH FLOW. Companies are now forced as you say to increase markup on supply & install of materials to improve their cash flow.

[@XUSolutions]

@@southeastglassglazingltd3545 you're correct that you don't lose out because any VAT paid can always be reclaimed. If your cash flow is affected, there is always the option to change your VAT period from quarterly to monthly.

[@smallbackgardenplot7273]

Do we do the reverse charge on vat for just materials supplied

[@smallbackgardenplot7273]

I have found it now and it has said yes Xx 😊

[@XUSolutions]

Glad you found it

[@smallbackgardenplot7273]

@@XUSolutions could you help me please we are doing the cycle scheme and I’m not sure what we put in vat could you do a video on it please thank you

[@karoma2032]

Hi, I have got a subcontractor who is CIS registered, but his sales invoices includes 20% standard vat rate, Not domestic recharge Is this correct or wrong? As per your video he should charge at 20% domestic recharge( and apply CIS labour income) Please can you tell me the correct procedure?

[@XUSolutions]

I'm not sure if you are receiving the invoice or sending the invoice? If you are involved in CIS you need to spend time understanding the rules to determine when DRC applies. It applies when VAT registered and within scheme and not the end user.

[@kelssssassy]

When I click on the tax rates the blue box doesn’t appear,what’s wrong ?

[@XUSolutions]

Your user permission maybe need upgrading

[@siqisu558]

Hi! I am still a bit confused, if Cheery construction paid Bertie 160, VAT to pay HMRC is zero, then who's gonna pay that 20% VAT?

[@siqisu558]

Is it Cheery construction is out 200, but only 160 was for Bertie, and that 40 automatically goes to HMRC?

[@XUSolutions]

OK , prior to DRC Bertie would have paid HMRC the output VAT and Cheery would have reclaimed the input VAT - being £40 for each. Now, under DRC, Bertie does nothing and Cheery is responsible for both paying the output (sales) VAT and reclaiming the input (purchases) VAT. Because these two amounts cancel each other out, then there isn't anything to pay. Hope that helps :-)

[@siqisu558]

@@XUSolutions Thank you for replying! Does that mean HMRC is supposed to get nothing from this trade? Sorry I am new to VAT, have a lot to learn...

[@XUSolutions]

There's no change to what HMRC receives. VAT is a tax on the end user, whereas businesses will always reclaim the VAT they pay.

[@siqisu558]

@@XUSolutions Ohh I get it now, thank you so much for your replies, they are really helpful!