CIS for newbies
CIS - What does it mean for my business?
Do you understand the reverse charges yet or had it explained and still don’t get it?
🔸The aim of the reverse charges in the domestic construction industry is to combat missing trader fraud.
🔸The end user will now pay the vat due to HMRC.
🔸So the vat registered business supplying ➡️ to another vat registered business will have to state on the vat invoice that it is subject to DRC. It is the end user that must account for the vat due through its vat return, instead of paying it to the supplier.
🔸Who will it apply to?
It will apply to specified services (specified services defined as construction operations for purposes of CIS) between 2 vat registered businesses where there is an onward supply to another customer. The scope is broad so do check.
🔸 Applicable services include:
• construction
• repair
• installation of air conditioning/lighting/heating.
• painting and decorating
• demolition
• civil engineering
• extensions
IMPORTANT❗️If there is just an element of the service subject to DRC, the whole supply should be treated as DRC.
🔸Both parties can agree any subsequent work on the same site be covered by the DRC. However, if the initial services were not subject to DRC, but subsequent work is, the vat treatment changes. You’ll need to review this project by project.
🔸 DRC will apply, unless:
• supplies are zero rated.
• the supplier and recipient are landlord and tenant, or vice versa.
• the recipient is NOT vat registered.
• the recipient makes an onward supply of those services to a connected company.
• the services are for either the owner/main contractor who sells/lets the newly constructed building.
🔸 If the customer does not confirm if they are the end user in writing, the guidance is to treat as DRC.
If it is clear the customer IS an end user, it is acceptable to charge vat in the normal way.
🔸New work checks:
• confirm end user in writing if possible.
• Obtain their vat registration number and CIS status.
🔸 On invoices:
• must include all normal info on vat invoice.
• Must make clear that supply is subject to DRC and the customer pays VAT.
• A HMRC suggested wording “Reverse charge: VAT Act 1994 Section 55A applies”
Please get in touch if you feel stuck and need a hand.
