On the Revenue Commissioners Site is where you can find all the details about the new rules regarding VAT to be charged by sub-contractors to principal contractors. These rules come into affect on the 1st September 2008.

The Revenue Commissioners also have a check list for:
Principal Contractors
Sub-Contractors
Practitioners
Public Bodies

But these check lists do not deal with the changes required for your accounting software.

The item you need to be most concerned with is that as a subcontractor you will be paying less VAT to the Revenue Commissioners each month. So if you are paying a fixed VAT amount every month to the Revenue Commissioners consider

reducing the direct debit amount. Your cashflow may also be affected, because you will be receiving less cash, as your invoice amounts are lower. So you don't get the extra credit you got when you charged VAT and did not have to pay your VAT return until later.

As a Principal Contractor your VAT payable to the Revenue Commissioners will go up and could go up quite substantially. Watch your cashflow carefully and if you are paying VAT by direct debit, you will need to increase the amount you are paying by direct debit.

If you are both a Principal Contractor and a Sub-contractor (it can happen) watch your cashflow and examine how your VAT may be affected.

If you don't understand the Principal Contractor and Sub Contractor terms don't worry about it, let's just figure out how we can deal with the following challenges.

Your accounts software may not be able to deal with these changes. You may be forced to upgrade to a newer version or a higher version or get a new software package altogether. This can cost you money.

Challenge 1.
The subcontractor must place the words "VAT ON THIS SUPPLY TO BE ACCOUNTED FOR BY THE PRINCIPAL CONTRACTOR" on every invoice he sends to the Principal Contractor for construction services e.g. building work, but not for the supply of goods i.e. the sub-contractor could sell goods to the principal contractor separately from the supply of services if his business is also in the business of selling goods e.g. A business could sell bricks in their hardware store but also offer a service to build houses.

We could design a Sales Invoice that has these words already placed on the invoice.
or
Put the words in the customers address as this appears on every invoice, but this has a side affect that goods that need to be charged at 13.5% or 21% can't then be sold on this account unless of course you keep changing the address
or
Buy an ink stamper with the words on it and stamp the relevant invoices as required.

Challenge 2.
The Sub-Contractor must charges 0% instead of 13.5% or 21%. The Sub-Contractors default VAT codes can no longer be used, as each time he does an invoice to the principal contractor, he must remember to charge 0%. Unless your software can allow you to set a special default vat code for the principal contractor you must always remember to charge 0%.

In the example above with the sale of bricks we must charge 21% and not 0%. Would it be better to setup two customer accounts for the principal contractor so that we know that the VAT charged on one account is always 0% and on the other 13.5% and 21%. It involves more administration on you the bookkeeper, but it may make it easier to manager it overall.

Challenge 3.
Do we set up a new VAT code specifically for 0% vat charged to principal contractors to help us check that we don't start charging other customers 0% in error. Again this means more adminstration but it is much easier to track sales to principal contractors as they are the only customers using this vat code.

Challenge 4.
As a principal contractor you now must record your suppliers invoice (the sub-contractors invoice) at 0%. It may be better to set up a new VAT code of 0% just to deal with these invoices so that at the end of the year, should the Revenue Commissioners request it, you can print out a list of invoices only from sub-contractors.

Challenge 5.
As a Principal Contractor and a Sub-contractor you will need to deal with all the combinations above. You will need to mix and match all the different solutions.

The change in the way VAT is handled ensures that rogue builders who charge VAT and then go out of business or disappear and never send the VAT they charged to the Revenue Commissioners will now be unable to do this in the future. They also will get paid less money as they did not charge VAT and don't get to "spend" the VAT they never paid over to the Revenue Commissioners.

The Principal Contractor is now acting as a collection agent not only for his own VAT, but also for the VAT of his Sub-Contractors.

The big problem is that you the bookkeeper has to do the work and administer all this. Talk with your accounts software support provider and see how they are going to deal with these changes and start working on these challenges now.