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Construction Industry Scheme (CIS) Domestic VAT Reverse Charge

09 - 02 - 2021

What is the CIS Domestic Reverse VAT Charge? 

The CIS Domestic Reverse VAT Charge has been designed by HMRC to prevent fraud where some traders are receiving VAT from their customer, but not reporting or paying it to HMRC. Where the reverse charge applies, customers within the construction industry receiving the supply of construction services must pay the VAT due on those services directly to HMRC rather than to the supplier.

What does the CIS Domestic Reverse VAT Charge apply to?

 

The CIS Domestic Reverse Charge for VAT applies to any VAT on work which is subject to the Construction Industry Scheme (CIS).

When does the CIS Domestic Reverse VAT Charge come into force?

 

The CIS Domestic Reverse VAT Charge measure was initially intended to come into force in October 2019. The measure has been delayed twice due to Brexit and the coronavirus pandemic. The charge is now intended to come into force on 01 March 2021.

 

When is the CIS Domestic Reverse VAT Charge applied?

 

There are certain conditions that must be met before the charge is applied:

1. Both the Supplier and their Customer are registered under the Construction Industry Scheme;

2. There is no connection between the Supplier and Customer;

3. The supply is made between a UK VAT registered supplier and a UK VAT registered customer;

4. The VAT supply is for construction services and materials;

5. The customer intends to make an ongoing supply of construction services to a third party;

6. VAT is chargeable.

 

When does the CIS Domestic Reverse VAT Charge not apply?

 

The Reverse Charge does not apply to:

1. Supplies of VAT exempt building and construction services;

2. Supplies of staff or workers;

3. Supplies not covered by the Construction Industry Scheme.

 

Who does the CIS Domestic Reverse VAT Charge not apply to?

 

The Reverse Charge does not apply to:

 

1. A non-VAT registered customer;

2. A customer who is not making on going supplies i.e. the end user;

3. Connected parties.

 

How do I account for the CIS Domestic Reverse VAT Charge?

 

If the VAT reverse charge rules apply, you may no longer need to pay VAT to HMRC each quarter.

 

Invoices sent to your customer (or “self-billing” invoices if your customer prepares their own) should state that a VAT Reverse Charge is due. The invoice should continue to show the value of the VAT and the VAT rate applicable. No VAT is actually charged on the invoice and your customer will not pay the VAT over to you. Your customer will report and pay any VAT due to HMRC on their own VAT return.

 

How do I report the CIS Domestic Reverse VAT Charge?

 

Under the reverse charge rules, the responsibility to report and pay VAT to HMRC will be with your customer. Previously, this responsibility has been with your limited company.

 

What affect will this have on my business?

 

The overall affect will be nil with no affect on your business profit. However if you rely on receiving the VAT for your company’s cash flow you may wish to retain additional money in your business bank account to allow your company to pay for any ongoing business expenses.

 

Will the CIS Domestic Reverse VAT Charge apply if I am Gross Status for CIS?

 

Yes. The VAT reverse charge rules still apply if you are subject to CIS but have received permission from HMRC to use “Gross Status”.

 

If you have any questions please do not hesitate to contact your Advisor on 01244 625 500 and we will be happy to explain further.

 

If you would like to discuss any of the issues noted above please contact us on:

01244 625 500 or 01978 364 000

                                                                                                  contactus@foremansllp.com                                                                                             Whilst all due care and attention has been taken in the preparation of these notes no liability can be accepted for any omission or item contained therein. Foremans LLP

                                                                                                               January 2021 

 

 

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Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage