Changes to VAT in the construction sector (CIS VAT)

For companies who will be affected by the changes to VAT in the construction sector and who use Dynamics NAV or Dynamics 365 Business Central as their ERP system some reconfiguration of their system will be needed for compliance. The effect of the change is the same as the reverse charge VAT with the EU prior to Brexit; for transactions subject to the reverse charge rules the supplier will not charge VAT on the sale, but the purchaser must calculate the VAT on the purchase, and record it in box 1 (it’s box 2 for EU reverse charge) and reclaim it in box 4.

Therefore, a new VAT Business Posting Group will need to be set up in Dynamics NAV or Dynamics 365 Business Central and used on relevant sales and purchase transactions. VAT Posting Setups will need to be updated with the new VAT Business and VAT Product Posting Group combinations. Lastly, the VAT Statement will need to be updated to include the new combinations.

TNP can help with the necessary reconfiguration of your Dynamics NAV or Dynamics 365 Business Central system in order to comply with these changes. Simply contact your account manager or contact us on moreinfo@thenavpeople.com 

The HMRC’s guidance on this change to CIS VAT is as follows:

Completing your VAT Return
VAT on sales
For sales under the domestic reverse charge suppliers must not enter any output tax on sales to which the domestic reverse charge applies in box 1 of the VAT Return. The net value of the sale must be entered in box 6.

VAT on purchases
If you are purchasing a service subject to the reverse charge, you must enter the output tax on purchases the domestic reverse charge applies to in box 1 of the VAT Return. Make sure you do not enter the net value of the purchase in box 6.
You may reclaim the input tax on your domestic reverse charge purchases in box 4 subject to the normal rules, and you should enter the net value of the purchases in box 7 as normal.

Furthermore, the Sales invoice document MUST state that the CIS reverse charge applies and that the applicable rate of VAT is 20% and the customer is required to account for the VAT.
It should state how much VAT is due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown, but that VAT should not be included in the amount charged to the customer.

Examples of wording:
• Reverse charge: VAT Act 1994 Section 55A applies.
• Reverse charge: S.55A VATA 94 applies.
• Reverse charge: Customer to pay the VAT to HMRC

Here's a simple checklist taking you through the steps in your Dynamics NAV system:

• Create a VAT Business Posting group e.g. CIS
• Update the new VAT Business Posting Group and VAT Product Posting Group combinations in VAT Posting Setup
• You can view an example of the new VAT Posting Setup and VAT Statement here
• Assign the VAT Business Posting Group to relevant Customers/Vendors records. (NOTE: As transactions may or may not be subject to the CIS reverse charge rules, depending on whether the supply is to an end user, you may have to change the VAT Business Posting Group on an Order/Invoice to the one appropriate for the transaction)
• Update any existing orders if payment will be made after 1st June:

• Update the VAT Statement with the new VAT Business and VAT Product Posting Group Combinations
• Sales Invoice layout wording MUST state that CIS Reverse Charge applies. For organisations using BC15 or later, a VAT Clause can be created and added to your VAT Posting setup to satisfy this requirement. For earlier versions, please contact your Account Manager.

More information on the HMRC’s website here.