The following information is for general guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. To determine the VAT treatment for your particular transactions please refer to HMRC guidance or seek tax advice from an accountant.
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 the cash accounting scheme for VAT should exclude domestic reverse charge transactions from the scheme and account for them under the standard accounting method, i.e. at the time of invoice rather than payment (if different).
To do this while maintaining cash accounting for your other transactions, leave the VAT cash accounting setting ticked (Set Up>VAT) and perform the workaround provided in the links below.
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.