NOTE: The government delayed the date to which this legislation comes into action from October 2019 to 1st March 2021, more information can be found here.

The way in which VAT is charged on construction services will change from 1st March 2021, as a result of new anti-fraud rules.

This will impact domestic supplies (UK Only) where payments are reported under the 'Construction Industry Scheme', more specifically supplies of services that are Standard Rate (20%) or Reduced Rate (5%). 

The functionality is available from the following versions onwards:

• Sage ERP 1000 V4 SP11 Patch 3 Hotfix 2
• Sage ERP 1000 V3 SP14 Patch 3 Hotfix 2
• Line 500 7.1 OP71.227, AT71.126 and SK71.166    

The set up for MTD, Accounts Receivable, Accounts Payable and Purchase Order Processing is unchanged from the workaround for CIS for all versions.

Summary of New Functionality

• Set new system key OPCISREVCH to YES to enable the new CIS functionality
• Create new system key(s) OPCISRVxxx (where xxx is your CIS 0 rated VAT code) and set it to 0,zzz (where zzz is the standard Sales VAT code for the rate to be reversed) for every CIS VAT code in use
• Link your CIS VAT codes to products, services, customers and suppliers through the VAT Matrix if this has not already  been completed
• Set OPCISREVCR to YES to apply the functionality to credit notes for products and services
• Set OPCISREVMX to YES to enable a warning message on the order and invoice trailer if a mix of VAT codes are on the order
• A new field rcvat_msg2 can be added to the invoice tail to specify the VAT code used for CIS on the invoice.
• If the workaround for CIS was previously in use and DA1407 is enabled only for CIS it should be switched off.  If the system detects invoices which could use either CIS functionality when in Invoice and Credit Print then no invoices will be processed

General Limitations 

• The customer (user) must manually check to ensure that all invoice lines in all modules are for CIS Reverse Charge VAT codes or none of them are.  

Making Tax Digital

• The changes are identical to the workaround instructions for all versions of Sage ERP 1000 and Line 500.

Accounts Payable

• Only Accounts Payable transactions have any impact on the MTD Tax reports and Tax return
• The  customer (user) is expected to know which transactions it applies to

Setting up a new Purchase CIS Reverse Charge VAT code

1. Go to General Configuration - Create / Amend Master Files - VAT Configuration - VAT Code
2. Create a new VAT code (for example PVC) and enter a description and a VAT rate of 0 
3. Enter valid GL control code and set the Ledger to Accounts Payable
4. Press F2 browse on the VAT service and pick up your VAT service code
5. Press F3 to access the Extra Details for MTD screen
6. Set the Sales EC and Purchase EC fields to No
7. Tick the Domestic reverse charge box.  If you are on MTD version 1.2 or below the box will be titled Purchase reverse charge.   It is the same field and should be ticked.
8. In the Mapped VAT code field press F2 Browse and find and select your existing 20% purchase VAT code (for example PV)
9. Press Confirm twice to create your new code

Purchase Ledger Invoices on the MTD Tax Report

Invoices using the new VAT code will display three lines on the MTD Tax Report.  An invoice line, a reverse charge line and a payment line. 

They will update boxes 1, 3, 4 and 7 of the MTD Return

Purchase Order Processing

• The customer (user) must manually check to ensure that all invoice lines are for CIS Reverse Charge VAT codes or none of them are.   This is a HMRC limitation
• Products and Services are supported for Purchase Invoices
• Once the VAT matrix is set to pick up your CIS VAT code invoicing will proceed as normal

Adding the Purchase CIS VAT code to the VAT Matrix

The basic steps required are shown below.  Time should be taken at this stage to review which combination of products, services and account types will require the reverse charge for Purchases and Sales and how this impacts the current entries in the VAT Matrix.

1. Go to General Configuration - Create / Amend Master Files - VAT Configuration - Item VAT Type Maintenance
2. Create a new CIS item VAT code (for example CIS) with a description
3. Go to General Configuration - Create / Amend Master Files - VAT Configuration - VAT Matrix Maintenance
4. Create a new entry of CIS for the item type and leave the VAT type of the customer or supplier blank   
5. Enter a description and F2 browse and pick up your Purchase CIS VAT code (for example PVC)

Adding the Item VAT code to a product

1. Go to Inventory Control - Create / Amend Files - Full Stock Details
2. For each of your products add the new Item VAT code to the VAT type field on Page 1

Adding the Item VAT code to a Service

1. Go to Purchase Order Processing - Create / Amend Files - Services
2. For each of your services add your new Item VAT code to the VAT type field

Accounts Receivable

• If you are entering invoices directly you can use any zero VAT rated code but it is advisable to create a new code for CIS invoices
• If you are entering invoices through Sales Order Processing or Telesales then you must create a new CIS VAT code and set up the new CIS functionality.  See section below.

Setting up a new Sales CIS VAT code

1. Go to General Configuration - Create / Amend Master Files - VAT Configuration - VAT Codes
2. Create a new VAT code (for example SVC) and enter a description and a VAT rate of 0  
3. Enter valid GL control code and set the Ledger to Accounts Receivable
4. Press F2 browse on the VAT service and pick up your VAT service code
5. Press F3 to access the Extra Details for MTD screen
6. Set the Sales EC and Purchase EC fields to No
7. Press Confirm twice to create your new code

Sales Ledger Invoices on the MTD Tax Report

CIS invoices appear on the report in the same way as other zero rated invoices 

They will update box 6 on the MTD Return

Sales Order Processing and Telesales Order Entry

Limitations

• The customer (user) must manually check to ensure that all invoice lines are for CIS Reverse Charge VAT codes or none of them are.   This is a HMRC limitation
• The new functionality does not work with Early Settlement Discount.
• The new functionality does not work with VAT Inclusive Pricing
• The new functionality does not workwith Order Header Discounts across VAT codes

Initial Set Up 

1. Create a new Sales CIS VAT code (as per instructions above) if this has not already been done
2. Note your existing standard 20% Sales VAT code.  This can be found in General Configuration - Create / Amend Master Files - VAT Configuration - VAT Codes
3. Go to System Manager - System Key Maintenance - All System Keys - 
4. Set new system key OPCISREVCH to YES to enable the new functionality
5. Create new system key(s) OPCISRVxxx (where xxx is your CIS 0 rated VAT code) and set it to 0,zzz (where zzz is the standard Sales VAT code for the rate to be reversed) for every CIS VAT code in use
6. Check there are no system keys with the prefix OPRCVATxxx system keys.  If there are then delete them or disable project DA1407
7. Set OPCISREVCR to YES to apply the functionality to credit notes for products and services
8. Set OPCISREVMX to YES to enable a warning message on the order and invoice trailer if a mix of VAT codes are on the order

Adding the Sales CIS VAT code to the VAT Matrix

The basic steps required are shown below.  Time should be taken at this stage to review which combination of products and account types will require the reverse charge for Sales and Purchasing and how this impacts the current entries in the VAT Matrix.

1. Go to General Configuration - Create / Amend Master Files - VAT Configuration - Item VAT Type Maintenance
2. Create a new CIS item VAT code (for example CIS) with a description
3. Go to General Configuration - Create / Amend Master Files - VAT Configuration - VAT Matrix Maintenance
4. Create a new entry of CIS for the item type and leave the VAT type of the customer or supplier blank   
5. Enter a description and F2 browse and pick up your Sales CIS VAT code (for example SVC)

Adding the Item VAT code to a Product

1. Go to Inventory Control - Create / Amend Files - Full Stock Details
2. For each of your products add the new Item VAT code to the VAT type field on Page 1

Adding Products and Services to a Sales Invoice

Orders can be created in Sales Orders, Sales Invoices or Telesales Order Entry and can be invoiced in Sales Invoices, Invoice and Credit Print and directly from Telesales if the AX module is licensed and set up.  Invoice and Credit Consolidation is not supported.  

1. Go to Sales Order Processing - Tasks - Sales  Invoices and press F6 for the next number
2. Enter your customer and header details and confirm to the detail lines
3. Enter your warehouse and item code and on the stock details check that the VAT code is the new Sales CIS code
4. Enter your service code and on the stock details check that the VAT code is the new Sales CIS code
5. Print the invoice and note the the message on the trailer totals the CIS message totals the VAT for both the stock code and the service

Adding Products and Services to a Sales Credit

1. Go to Sales Order Processing - Tasks - Sales Credits and press F6 for the next number
2. Enter your customer and header details and confirm to the detail lines
3. Enter your product or service and check that the VAT code is your Sales CIS code and is zero rated
4. Enter your service code and on the stock details check that the VAT code is the new Sales CIS code
5. Print the credit and note the the message on the trailer totals the CIS message totals the VAT for both the stock code and the service

Adding the additional comment line to the invoice print

1. Go to Forms Designer and copy the op, spool_invoices print_form4 to your user formset
2. In your user formset open up the tail_details subform
3. Create a new field directly underneath the rcvat_msg field and make it the same size
4. Enter the field name as rcvat_msg2 as a string with a length of 60 and save the changes
5. Repeat the steps for the at, spoool_invoices print_form4 if you need to print invoices directly from Telesales

Reporting

Reverse Charge Sales (DA0370) report

This report is found in General Configuration - Reports - VAT Reports and lists all Accounts Receivable and Sales Invoices per customer for a specified VAT code in chosen time period.

In Line 500 there is also a Reverse Charge Service Report for systems that do not have project DA0370 licensed (this is mandatory in Sage ERP 1000)