Please note that the information on this page is for general guidance only and should not be taken as tax advice, since individual circumstances may vary. Whilst guidance from HMRC indicates that domestic reverse charge (DRC) transactions should be excluded from the cash accounting scheme, there may be exceptions to this depending on your particular circumstances. If you are unsure, you should seek tax advice from an accountant.
Reverse charge transactions can be excluded from cash accounting in VT Transaction+ by following the steps below.
According to HMRC VAT Notice 735: Domestic Reverse Charge Procedure (which includes construction services), para 10.8.2:
'Businesses using the cash accounting scheme should exclude sales and purchases that the reverse charge applies to from the scheme. These supplies should be accounted for under the reverse charge provisions.'
This indicates that businesses who use cash accounting for VAT, should exclude DRC transactions from the scheme and account for them under the standard accounting method, i.e. where VAT/net amount is accounted for at the time of the invoice (rather than at the time of payment under cash accounting). However there may be exceptions to this depending on your particular circumstances.
Authenticated tax receipts
If you have used authenticated tax receipts for your sales, rather normal VAT invoices, you can use the REC transaction to record the sales. Select No VAT in the VAT Output field.
Completing your VAT return
As the sub-contractor/supplier, you will not be charging output VAT on the supply. Therefore, no output VAT on the sale should be included in Box 1 of the VAT return. However, the net value of the sale is required to be included in Box 6.
When generating the VAT return, this will occur automatically if you have recorded the sales as described in this section.
Sales to non-VAT-registered customers
The domestic reverse charge does not apply to sales made by a subcontractor to a customer who is not VAT-registered or is not liable to be registered for UK VAT. In this case, VAT should be charged in the normal way, by the subcontractor.