CIS & Reverse Charge VAT
From 1st March 2021 VAT charging & reporting for contractors and subcontractors within the Construction Industry Scheme has changed .VAT will now be accounted for by the final contractor in the chain. The change affects those who are both CIS and VAT registered
I’m a subcontractor what do I do?
Invoice your contractor as you normally would, but don’t charge them the VAT
Instead, state on the invoice that the reverse charge applies and the customer is to pay to the VAT, showing the VAT rate and amount
On your VAT return, only enter the net sales amount in box 6 of your VAT return
This will have an effect on your cashflow, as you will pay VAT to your suppliers, but won’t be charging it to your contractors
You may find you will reclaim VAT from your VAT returns though, rather than paying it to HMRC. If this is the case, moving to monthly VAT returns can help with cashflow
I’m a contractor, what do I do?
You will receive an invoice from your subcontractor with no VAT charged. Make the usual CIS deduction and pay the balance due
On your VAT return you need to report your records for the purchase, and the sales VAT on behalf of the subcontractor:
The subcontractors sales VAT amount in box 1
Your purchase VAT in box 4
Your net purchase value in box 7
You won’t pay the VAT amount to your subcontractor, and it won’t affect the amount of VAT you have to pay HMRC