Getting Housing Tax Right at the Point of Purchase
Housing associations carry tax rules most ERP templates ignore: partial exemption, the Construction Industry Scheme and the domestic reverse charge. Each is easier to control when it is set at requisition.
Steps, in order:
- Requisition: VAT split by PESM rate
- Purchase order: Reverse charge flag on supplier
- Invoice: CIS on labour lines only
- Payment: CIS deducted by supplier status
- Returns: VAT through MTD; CIS by the 19th
Partial exemption
Much housing income is exempt from VAT, so input VAT is only partly recoverable under a partial exemption special method (PESM) agreed with HMRC. Calculating recoverable and non-recoverable VAT on the requisition shows budget holders the true cost before they commit.
Construction Industry Scheme (CIS)
Contractors deduct CIS from the labour element of a subcontractor's invoice, at a rate set by the subcontractor's registration status. One invoice can carry labour and materials, so the deduction belongs at line level. Monthly CIS returns cover the tax month ending on the 5th and are due by the 19th.
Domestic reverse charge
Since March 2021, many construction services between VAT-registered businesses use the reverse charge. The buyer accounts for the VAT, so supplier setup and tax codes must flag it.
Making Tax Digital
VAT returns go to HMRC through MTD-compatible software, so the finance system needs a submission route from day one.