Under the domestic reverse charge, a lot of your invoices carry no VAT at all, and getting that call wrong costs you either way.
Charge VAT where the reverse charge applies and your customer will refuse to pay it. They are right to. You then either credit the invoice and reissue it, or argue about it while the money sits unpaid.
Miss it the other way, treat a supply as reverse charge when it was never in the scheme, and the VAT you should have charged is still owed. Your customer has gone, the job finished eighteen months ago, and it comes out of your margin.
The rules themselves are written up elsewhere on the site. This page is about getting them applied correctly on every invoice without you having to think about it.
Where firms get caught
End user status taken on trust. A customer says they are the end user and the invoice gets raised on that basis, with nothing in writing anywhere. When HMRC asks, a phone call two years ago is not evidence.
Intermediary supplier status missed. Connected companies and landlord and tenant arrangements can sit outside the reverse charge for reasons that have nothing to do with the work being done. This is the one most firms have never heard of.
Mixed contracts. Part of the work falls inside the scheme and part does not. Invoiced as one line, it gets treated as one thing, and one of the two halves is then wrong.
Software left on the default. The tax rate on a contact does not update itself when that customer’s status changes. Nobody notices until a quarter’s worth of invoices has gone out on the wrong footing.
The purchase side. Suppliers get this wrong too, and VAT charged to you that should never have been charged is not recoverable as input tax. Paying it and reclaiming it leaves you out of pocket twice.
Reverse charge and CIS drifting apart. The two follow each other closely. Firms that have their CIS scope wrong usually have their VAT scope wrong in the same places.
What is included
- The reverse charge configured inside your accounting software, with the right treatment set against the right customers and suppliers, so it applies itself on entry
- A review of your customer base to work out which customers are end users and which are not, and how each should be invoiced
- Written notifications drafted and issued where a customer’s status has to be confirmed in writing, and a record kept of them
- Mixed contracts reviewed and split, so the part inside the scheme and the part outside are invoiced separately and clearly
- VAT returns prepared, checked against your ledgers and filed
- Purchase invoices checked for VAT charged to you that should not have been, and taken up with the supplier
- Errors corrected, and disclosures made to HMRC where that is the right route
- Correspondence with HMRC handled in your name if a check comes
How it works
- First call. We look at who you invoice, who invoices you, and what treatment is being applied today.
- We sample recent sales and purchase invoices in both directions. Errors usually show up inside the first handful.
- We tell you what we have found and what it is worth, before you decide anything.
- We set the treatment inside your software against each customer and supplier, and draft the notification wording you need.
- We prepare and file your returns from that point, and query anything that looks out of pattern before it goes.
- Where past errors need correcting, we deal with HMRC on it.
Who this is for
UK construction limited companies turning over between £500,000 and £5 million, VAT registered, invoicing other construction businesses. Firms that are contractor on some jobs and subcontractor on others get the most out of it, because they are exposed on both sides.
It is not for you if all your work is for private householders, since the reverse charge does not reach that work and standard VAT handling is enough. It is also not for you if you want the returns filed exactly as your ledger stands. We check what is in there, and sometimes what is in there is wrong.
Common questions
Our customer says they are the end user. Is that enough?
Not on its own. It needs to be confirmed in writing and kept on file, because you are the one HMRC asks.
What happens if we have been getting this wrong for a while?
It gets quantified first, then corrected. Coming forward is a materially better position than being found, and we handle the correspondence.
Does the reverse charge apply to everything we do?
No. It follows the scope of CIS, so work outside the scheme is outside the reverse charge as well. That is why the two get reviewed together.
Can our software handle it automatically?
Yes, once the treatment is set correctly against each contact. The failure is almost always setup rather than the software.
Who checks what our suppliers charge us?
We do, as part of the return. VAT wrongly charged to you is a cost, so it is worth catching before it is paid.
Book a call. Send over a recent sales invoice and a recent purchase invoice, and we will tell you on the call whether the VAT treatment on both is right.
Common questions
Does the domestic reverse charge apply to my invoices?
It applies where you supply construction services that fall inside CIS to a customer who is VAT registered, registered under CIS and is not an end user. In that case you do not charge VAT and your customer accounts for it. Supplies to homeowners and to end users are outside it. Getting this wrong usually goes unnoticed for months, which is what makes it expensive.
What if I have been charging VAT when I should not have been?
It is correctable. We work out the period affected, adjust the returns and tell you whether it needs a formal error correction or can go through the next return. The sooner it is found the smaller the job, so it is worth checking rather than assuming.