From the 1st March 2021, the CIS VAT Reverse Charge will apply to construction workers. It has been coming for some time and has been twice delayed due to Brexit and the pandemic.
If you work in the construction industry and are VAT registered, you need to know about the new rules. We’ve explained these rules to make sure clients and readers don’t get caught out.
Let’s hammer it out…
The Construction Industry Scheme (CIS) Reverse Charge VAT system is a way for some construction workers who supply a service to change the way they invoice and collect VAT. The rules can be complex and detailed, but understanding how it could work is best done with an example.
Let’s imagine Andy is a roofer who buys materials and then builds a roof for a contractor called Julie, who is building houses for a developer. Both Andy and Julie are VAT registered.
Andy would invoice Julie for his materials and service and then add VAT to the invoice. For the sake of keeping things simple, let’s imagine that Andy’s work cost Julie £100,000. Under the old system, the invoice sent to Julie would be for his labour and materials costing £100,000 and VAT at 20%, making the total invoice worth £120,000.
But the new system changes this. Andy would now only invoice Julie for £100,000 and state that the CIS Reverse Charge VAT has been applied (and how much). Andy will not be required to mark the transaction in his VAT return as he was never paid the VAT, but Julie would need to make adjustments on her VAT return.
It should be noted that any invoicing that Julie does in the supply may also be subject to this new scheme. However, if Julie is invoicing a finished product as a developer, it can be contested whether the rules still apply.
CIS Reverse Charge VAT should be used when constructing, repairing, altering, demolishing or extending, a part of a building or land. Other jobs that may be included are setting pipelines, installing drainage systems, putting up scaffolding, painting, and multiple jobs relating to foundational work.
For a complete list of what is included, you may want to speak with a qualified UK accountant, so you don’t make mistakes.
CIS Reverse Charge VAT will be used by one entity registered for VAT in the UK that supplies another entity registered for VAT in the UK as part of the construction supply. More details of what does and does not count can be found further below.
If you or the entity you are providing the service to are not VAT registered, then the new rules will not be applicable. The scheme will also not be used when one entity is supplying another entity with a supply of construction workers.
Some common jobs carried out during the process of building and construction, which are not subject to CIS Reverse Charge VAT are:
However, some tasks can become subject to the new scheme if they are part of the supply where other workers have used CIS Reverse Charge VAT.
If you need to issue an invoice using the new scheme, all of the usual rules surrounding invoicing still apply.
The difference is that no VAT should be added, and the invoice should declare that CIS Reverse Charge VAT has been used and what amount of VAT has not been charged, also known as the “reverse charge”.
You’re not alone!
Lots of our clients working in the construction industry have been asking questions about what they need to do. Get in touch with Yorkshire Accountancy if you need help and support navigating the new rules. We’re here to help with all your VAT queries and VAT returns.