CIS reverse charge - common questions

No, if you supply specified services that are reported under the Construction Industry Scheme (CIS) then you need to apply the reverse charge. There is no need to register beforehand.

HMRC advise: "It will only apply to individuals or businesses registered for VAT in the UK (although it will not apply to consumers). This will affect you if you supply specified services that are reported under the Construction Industry Scheme (CIS)."

The supplies are exempt from the reverse charge. Both the supplier and the recipient need to be VAT registered to apply the reverse charge.

The supplies are exempt from the reverse charge. Both the supplier and the recipient need to be VAT registered to apply the reverse charge.

There are no thresholds - the reverse charge applies to all specified supplies.

1st March 2021, meaning any invoices issued on or after this date should have the reverse charge applied.

If the building and construction service you are providing comes under a single payment contract, the tax point is the date that the service is performed or completed. For invoices issued for specified supplies spanning 1 March 2021 that become liable to the reverse charge, the VAT treatment for invoices with a tax point:

• Before 1 March 2021 - the normal VAT rules apply and you should charge VAT at the appropriate rate on your supplies.
• On or after 1 March 2021 - the domestic reverse charge applies.

For authenticated tax receipts or self-billed invoices, the tax point is normally the date the supplier receives payment.

More information on the tax point is available in the section about 'Transitional supplies for authenticated tax receipts or self-billed invoices' in HMRC: VAT: domestic reverse charge for building and construction services (opens in a new tab).

The responsibility lies with the subcontractor to ensure they are invoicing their customers correctly. However, as a contractor you have a responsibility to tell suppliers that you are VAT and CIS registered and are therefore within the remit of the reverse charge. Furthermore, there is a cash flow benefit to ensuring the reverse charge has been applied where required, and failure of the sub-contractor to correctly apply the reverse charge could indicate fraudulent activity.

If you are a subcontractor you will need to consider the effect on your cashflow. When reverse charge applies to an invoice, the sub-contractor will no longer be charging VAT to their main contractor, therefore the sub-contractor will now be unable to use the VAT they collect as working capital before they pay it to HMRC.

Conversely, main contractors may benefit from improved cashflow as they no longer have to pay VAT prior to reclaiming it as purchase VAT.

As a result of the reverse charge some businesses may find that, because they no longer pay the VAT on some of their sales to HMRC, they become repayment traders; that is their VAT Return is a net claim from HMRC instead of a net payment. Repayment traders can apply to move to monthly returns to speed up payments due from HMRC.

The reverse charge is only relevant between two UK VAT registered businesses. Otherwise, normal VAT rules apply.

Yes. CIS deductions still apply as usual and are withheld from sub-contractors in the same way as they are now.

The reverse charge affects supplies of building and construction services supplied at the standard or reduced rates that also need to be reported under CIS. These are called specified supplies. One important difference however is that the reverse charge applies to the whole service including materials whereas CIS payments to net status sub-contractors are apportioned and no deductions are made on the materials content.

When supplying a service subject to the domestic reverse charge, suppliers must:

• Show all the information required on a VAT invoice.
• Make a note on the invoice to make it clear that the domestic reverse charge applies and that the customer is required to account for the VAT.
• Clearly state how much VAT is due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown, but that VAT should not be included in the amount charged to the customer.

The new reverse charge is only relevant to supplies at the standard or reduced rates. The reverse charge does not apply if the service is zero rated for VAT or if the customer is not registered for VAT in the UK.

In this scenario the wholesaler is not involved in the supply chain - they are not providing or sourcing subcontractor services. Therefore the reverse charge would not apply to any purchase from the wholesaler.

The reverse charge would come into effect if you used the items purchased from the wholesaler to provide subcontractor services to a main contractor, as long as the items were vatable and within scope of CIS.

For subcontracted services you provide you will issue reverse charge invoices. For services you source from subcontractors you will receive invoices with reverse charge applied, that you will need to pay VAT over to HMRC. This scenario should not be problematic.

Correct - where you are the subcontractor you apply the reverse charge where applicable but where you are the contractor you will not.

They will pay the reverse charge if you have provided subcontracted services which are subject to reverse charge, and you should invoice with the reverse charge VAT element listed.

No, the new legislation is purely in relation to VAT and will not affect the amount of tax and national insurance withheld. The reverse charge requirements will apply regardless of whether you are a gross rated sub-contractor or not.

For more information about gross payment status, see HMRC: What you must do as a Construction Industry Scheme (CIS) subcontractor (opens in a new tab).

Reverse charge extends to any goods or materials supplied in conjunction with “construction services” and applies to materials that would not typically be reported on for CIS purposes. There may well be instances where a sub-contractor invoices for goods only and the reverse charge will apply because the goods relate to construction services provided, or because that contractor and sub-contractor have applied the reverse charge previously and agree to continue to do so.

You would continue to pay and reclaim input VAT (purchase VAT) as you do today. The difference is you will no longer be collecting output VAT (sales VAT) on behalf of HMRC and paying it over to them through your VAT Return.

Although you are no longer offsetting input VAT with output VAT, the net effect is the same. If the input VAT you can claim is greater than the output VAT you owe, you'll be due a repayment of VAT from HMRC. This is known as a 'repayment return'.

It may be worth also considering HMRC guidance on switching to monthly VAT returns if your returns result in you reclaiming VAT. Refer to HMRC guidance Monthly returns (opens in a new tab).

CIS invoices should always be itemised to breakdown labour and materials, and the onus is on the main contractor to ensure this is the case with any invoices issued. This is because labour is applicable to CIS tax while materials are not.

In terms of VAT, if an invoice includes labour and materials this is deemed a 'mixed supply' and the entire invoice would be applicable to reverse charge VAT.

The reverse charge VAT is applicable at the 'tax point'. For the purposes of self-billing you must issue invoices for every transaction, so the invoice must be issued at the point of payment. Under the new legislation the invoices would account for reverse charge in the usual way.

HMRC: "There is an important difference between CIS and the reverse charge where materials are included within a service. The reverse charge applies to the whole service whereas CIS payments to net status sub-contractors are apportioned and no deductions are made on the materials content."

HMRC: VAT: domestic reverse charge for building and construction services (opens in a new tab)

As a result of the reverse charge some businesses may find that, because they no longer pay the VAT on some of their sales to HMRC, they become repayment traders; that is their VAT Return is a net claim from HMRC instead of a net payment. Repayment traders can apply to move to monthly returns to speed up payments due from HMRC.

Yes, VAT is paid or reclaimed in the same way that you do this currently, the only difference is that the contractor pays the VAT to HMRC instead of paying it to the sub-contractor to pay over to HMRC.

The frequency of VAT submisison does not change. If you submit VAT returns quarterly that will remain the same. However, you may want to consider changing to monthly VAT returns for cashflow purposes.

HMRC state that "the professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape" are exempt.

For a full list of exemptions refer to 'Services excluded from the domestic reverse charge' in HMRC: VAT: domestic reverse charge for building and construction services (opens in a new tab).

When you are the main contractor in the supplier chain and providing a direct service or project to an end user, then reverse charge VAT is not applicable when that service is not a subcontracted service. In terms of reverse charge the end user (or customer) at the top of the supply chain is excluded from reverse charge VAT.

HMRC: "You may not be sure whether you are supplying a customer who is an end user or intermediary supplier. In this situation, you should ask the customer if they are an end user or intermediary supplier and keep a record of the answer. It will be up to the customer to make the supplier aware that they are an end user or intermediary supplier and that VAT should be charged in the normal way instead of being subject to reverse charge."

Refer to 'End users and intermediary supplier businesses' in HMRC: VAT: domestic reverse charge for building and construction services (opens in a new tab).

The reverse charge does not apply to consumers or final customers of building and construction services. Any consumers or final customers who are registered for VAT and CIS will need to ensure their suppliers don't apply the reverse charge on services supplied to them. Therefore, as a supplier, yes - you should continue to charge, collect and pay over VAT as you do today.

Continue to apply your partial exemption as you today - the only difference will be that if you receive a construction reverse charge invoice from your supplier there will be no VAT to physically pay over to your supplier - instead you will include it as output VAT in box 1 of your VAT Return.

The reverse charge is excluded from the flat rate scheme meaning that sub-contractors who are on the flat rate scheme should not include the value of reverse charge sales invoices in their flat rate turnover. They should instead account for the transaction as if they were on the standard scheme. Therefore, users of the scheme will have to consider if it is still beneficial to them when VAT is not being paid to them on some or all of the invoices they issue.

Flat Rate Scheme users who receive reverse charge supplies will also have to account for the VAT due to HMRC as they would under the standard scheme.

No, the reverse charge is excluded from cash accounting meaning that If you are on the cash accounting VAT scheme and either issue or receive a construction reverse charge invoice, you should account for it outside of cash accounting as you would under the standard scheme. Therefore, regardless of the scheme your sub-contractor is on, your invoice will be the same and you will be required to account for the VAT if the reverse charge applies.

HMRC: "You can still use the Cash Accounting Scheme for supplies that are not within the reverse charge. However, you'll have to use cash accounting for your purchases so you may find that the Cash Accounting Scheme no longer helps your cash flow. If this is the case, you can withdraw from the scheme."

Refer to 'Cash Accounting Scheme' in HMRC: VAT: domestic reverse charge for building and construction services (opens in a new tab).

The provision of building and construction services are continuous supplies of services. The tax point is whichever is earlier: either the issue of a VAT invoice or the receipt of payment. A payment would trigger the need to recognise VAT and as such at this point the contractor should recognise the associated VAT. Presumably any subsequent invoice including the remaining reverse charge VAT from the sub-contractor will be appropriately adjusted.

The tax point for the retention element of the contract is delayed until payment is received or a VAT invoice has been issued for it (whichever is earlier). Reverse charge would apply in this scenario as the payment / invoice point is after 1st March 2021.

Refer to 'Appendix A' in HMRC: Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340) (opens in a new tab).