Yesterday was the end of the first VAT quarter for 2021. VAT Returns prepared for that quarter will be different for many businesses to reflect the impact of Brexit and the new Domestic Reverse Charge rules for builders.
Businesses should review very carefully their VAT Returns prior to submission to HMRC as the figures, when compared with previous quarters, will be in most cases very different.
Since leaving the EU, the terms acquisitions and despatches are no longer used and these have been replaced with Import and Export. GB based businesses should adopt these new procedures and ensure that boxes 2, 8 and 9 of the VAT Return shows zero entries, as these were only relevant whilst the UK was a member of the EU. Since 1 January 2021 there is no longer any difference between EU and non EU trading. This does not apply to businesses based in Northern Ireland as Northern Ireland is still part of the EU’s single market as far as movement of goods are concerned. Those businesses when trading with business in the EU should continue to make entries in boxes 2, 4, 7 and 9 as appropriate.
Affected businesses, rather than paying for VAT at the UK border should elect for the postponed VAT accounting for goods arriving from the EU and account for the VAT in box 1 and 4 of the VAT Return with a reverse charge entry based on the value of the goods. The net value of the imported goods is recoded as input tax in box 7 of the VAT Return. Ensure that all entries are supported by the HMRC’s Customs Declaration.
From 1 March 21 businesses operating in the construction industry are affected by the new Domestic Reverse Charge rules for builders whereby the system transfer the VAT payable on sales invoices from the supplier to the customer.
Both suppliers and customers should ensure that invoices and software systems are well equipped with the relevant VAT rates of 5% and 20%. Where applicable, the supplier’s invoice will show the net amount of the sale, the relevant VAT rate applicable but without the VAT amount being charged. The entry of the sale will be shown on box 6 of the supplier VAT Return. The customer, after verifying the supplier’s invoice will account the VAT by the reverse charge mechanism by accounting the VAT in both his output tax at box 1, input tax at box 4 and the net amount at box 7 of his VAT Return.
Affected businesses will experience difference in their cashflows. Suppliers will find there will be less output tax to declare with lower payments to HMRC or in some cases even repayments. If this becomes the norm, careful consideration should be given to change from quarterly to monthly VAT Returns. Customers should be ready to make high payments of VAT due to HMRC.
Finally, Making Tax Digital for VAT will take effect from today 1 April 2021 for businesses above the VAT threshold of £85,000.
This blog is for general information only and does not substitute specific advice. You should not rely on it as specific advice and Peria & Co cannot accept any liability for its contents. If you need guidance please contact us at info@peria.co.uk or call us on +44 (0)1932 849023.
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