With a month to go before the introduction of the VAT reverse charge mechanism to the Contruction Industry, there are signs that some of the top selling accounting and bookkeeping software for small business is not yet ready for the changes. 

STOP PRESS: on 6/9/2019 HMRC announced that the CIS VAT Reverse Charge will not commence until 1/10/2020.

The CIS VAT reverse charge applies to business to business sales of construction work from 1 October 2019. When the reverse charge applies the customer accounts for the supplier's output VAT and the VAT recording and reporting requirements change.

The change is a big one for many VAT registered businesses who were required to also make changes to their software from 1 April 2019 under HMRC's the Making Tax Digital for VAT rules.

The National Federation of Builders (NFB)  and the Chartered Institute of Taxation (CIOT) have both written to the chancellor of the Exchequer, requestng that to be delayed until April 2020.

A recent survey by the Federation of Master Builders indicates that 69% of construction SMEs surveyed have not heard of the new reverse charge. The CIOT says that its members report a similar lack of awareness among SME construction businesses our members point to the difficulties being experienced by clients, particularly small businesses, in preparing for the technical and consequential software changes in the short period between publication of HMRC's guidance in June and the October implementation date.

How are the software companies doing?

It appears that Sage 50 and Pegasus are ready to go. 

Xero says that it 'does not currently support Domestic Reverse Charge but will do very soon'. it is 'currently working on changes to tax rates, invoicing and reporting to support this and we'll provide an update once they're completed and ready for release.'

Quickbooks says 'Our teams are fully aware of the change requirements and are working towards building the requirement in QuickBooks, in accordance to HMRC's guidelines in preparation for 1st October 2019.'

Carl from CLiP IT Solutions Construction Industry Accounts (CIA) Software says: "Our reverse charge update is all tested and ready to go".

Moneysoft says that its Money Manager is ready and provides a handy guide for users whilst also alterting them to how the reverser charge will affect CIS and PAYE reporting.

Penalties for getting it wrong?

The VAT domestic reverse charge mechanism is not a particularly easy thing to understand and so there are sure to be errors in reporting and accounting for it.

HMRC was slow in publishing guidance however it does confirm that will be operating a light touch on VAT Penalties for first 6 months of the new system.

Our Useful Guides

CIS: VAT reverse charge

VAT: penalties

Making Tax Digital for VAT

Correcting VAT errors

External links

CIOT letter

FMB survey

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