Capability: VAT

VAT domestic reverse charge on construction invoices

Estimark applies the construction domestic reverse charge per customer: flag the client, and every invoice raised for them carries nil VAT plus the statutory wording “Reverse charge: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC.”

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Where the reverse charge goes wrong

Charging VAT you should not have charged

The customer will not pay it, the invoice gets credited, and the whole thing is raised again a fortnight later.

The wording is missing

A reverse charge invoice has to say so. An invoice showing 0.00 VAT with no notice is not a compliant invoice.

It applies to sales invoices only

A certified payment application and a retention release are invoices too, and they are the ones that get missed.

It is applied by whoever raised the invoice

If the treatment lives on the invoice rather than the customer, it is right some of the time.

Capability: how it works

How does Estimark decide the reverse charge applies?

It does not decide. You do. The reverse charge is a flag on the customer record, because whether the supply is within CIS and the customer is not an end user is a determination only you can make.

Flag the client once, and every invoice raised for them inherits the treatment.
There is one safety check: if your own company has no VAT number on file, the reverse charge is switched off automatically. There is no VAT to shift if the supplier is not registered.

NoteEstimark does not hold end-user or intermediary certificates and does not apply the 5% de-minimis rule. The determination is the flag on the customer.

What does the invoice actually say?

The VAT line reads “VAT @ 20% (reverse charge)” against 0.00, and a notice block below the totals carries the statutory wording.

The exact wording is: “Reverse charge: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC.”
The VAT rate is still shown, so the customer can see the rate they must account for.
Net, VAT and total are stored on the invoice record, not just rendered on the PDF.

Which invoices does it apply to?

All of them. Every invoice in Estimark is priced through one function, so the treatment cannot be right on some routes and wrong on others.

Invoices raised on job completion.
Ad-hoc invoices raised directly.
Quote deposit invoices.
Certified payment applications and retention releases.
Recurring invoices and maintenance contract invoices.

Which VAT rates are supported?

The rate comes from your company VAT setting and defaults to 20%. Reduced rate at 5% and zero rate at 0% are both representable.

NoteOne rate per invoice, taken from your company setting. Estimark does not currently produce a mixed-rate invoice with different rates on different lines.

Does Estimark do Making Tax Digital?

It does not file. Estimark sends nothing to HMRC under either regime: no VAT returns under MTD for VAT, and no quarterly updates under MTD for Income Tax. What it does is keep the record: net, rate and VAT amount stored on every invoice, per job, for you or your accountant to file from.

Invoices push to Xero, QuickBooks and Sage Business Cloud Accounting, which is where the VAT return is normally prepared.
For Xero, the reverse charge notice is carried through onto the pushed invoice’s reference.
MTD for Income Tax is a different regime to MTD for VAT. It reaches sole traders and CIS subcontractors on their turnover rather than on VAT registration, so it catches businesses that have never had a VAT return to file. Estimark records the SA103 category, date, net, VAT and counterparty a quarterly update is built from, and reports what is still missing.

The reverse charge, in numbers

Statute cited: VAT Act 1994 s.55A
VAT charged: £0.00
Rate shown: Still displayed
Set on: The customer record
Supplier check: VAT number required
Rates: 20% / 5% / 0%
Price: Included on every plan

Which plan

Every plan

Included

VAT handling and the domestic reverse charge are part of invoicing. They are not a paid module, and they are on from Solo at £39 a month upward.

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What you get

Per-customer reverse charge flag
Statutory Section 55A wording on the invoice PDF
Net, rate and VAT stored on every invoice record
Applied on every invoice route including payment applications
Reverse charge notice carried to Xero

CIS deduction is a separate module, included from Solo upward at no extra charge.

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Questions

VAT reverse charge: frequently asked

Does Estimark handle the VAT domestic reverse charge for construction?

Yes. You flag the customer as a reverse charge customer, and every invoice raised for them shows nil VAT with the statutory wording “Reverse charge: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC.” The VAT rate is still displayed so the customer can see the rate to account for.

Does Estimark work out whether the reverse charge applies?

No, and that is on purpose. Whether the supply falls within CIS and whether the customer is an end user is a determination for you to make, so the reverse charge is a flag on the customer record rather than something guessed per invoice. Estimark applies one safety check: if your own company has no VAT number, the reverse charge is switched off.

Does Estimark submit VAT returns or support Making Tax Digital?

Estimark sends nothing to HMRC. It does not submit VAT returns under MTD for VAT, and it does not submit quarterly updates under MTD for Income Tax. It stores net, rate and VAT on every invoice and pushes invoices to Xero, QuickBooks or Sage Business Cloud Accounting, where the return is prepared. For MTD for Income Tax, which is a separate regime that reaches sole traders and CIS subcontractors on turnover, Estimark records the SA103 category on each transaction and reports what a quarterly update is still short of.

Can one invoice carry two different VAT rates?

No. Estimark applies a single VAT rate per invoice, taken from your company VAT setting. Standard rate at 20%, reduced rate at 5% and zero rate are all supported, but not mixed on the same invoice.

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