Who charges the VAT, who doesn't, what your invoice has to say and what it does to your cash. Answer five questions and it'll tell you which one you are.
Hazy on how CIS itself works? The complete CIS guide covers the whole scheme on one page. Not registered yet? Register for CIS first.
Five yes-or-no questions. It's the same test HMRC use, just in the right order.
1. Are you VAT registered?
2. Is your customer VAT registered?
Check the number on gov.uk if you're not sure.3. Is the payment reported under CIS?
Are they deducting CIS from you, or have they confirmed they report under CIS as a contractor?4. Is the work standard or reduced rate VAT?
Most work is. New-build housing is zero-rated, so answer No for that.5. Has the customer told you in writing that they're an end user or intermediary supplier?
Verbal doesn't count. No written confirmation means the reverse charge applies.Nothing you enter leaves this page. Labour-only subbies are inside the reverse charge; agencies supplying staff are not.
| The job | VAT on your invoice? |
|---|---|
| Subbing to a VAT-registered contractor who sells the work on | No — reverse charge |
| Direct for a homeowner | Yes — normal VAT |
| For a business using the building itself, confirmed in writing | Yes — normal VAT (end user) |
| Same business, but they've only told you verbally | No — reverse charge until it's in writing |
| Customer isn't VAT registered, or the payment isn't under CIS | Yes — normal VAT |
| Zero-rated new-build housing | No VAT either way — nothing to reverse |
| Materials on a reverse-charge invoice | Reverse charge on the lot (unless the labour is 5% or less of the total) |
| You're not VAT registered | Doesn't touch you — yet. Watch the £90k threshold |
Scope is the CIS list of construction operations: building, altering, repairing, demolishing, installing heating, lighting, power, water and drainage, painting and decorating, scaffolding, site clearance. Outside it on their own: supplying or delivering materials, architects and surveyors, signwriting, blinds and shutters, security systems.
Same invoice as always, with two differences. The VAT isn't added to the total, and there's a line saying the customer accounts for it.
Worked example — first fix, VAT-registered subbie to VAT-registered contractor
| Labour | £1,000.00 |
| Materials | £400.00 |
| VAT @ 20% — reverse charge, not added | (£280.00) |
| Total due | £1,400.00 |
|---|
Reverse charge: customer to account for VAT to HMRC. VAT Act 1994 s55A applies.
HMRC's rule: show everything a normal VAT invoice shows, make it clear the reverse charge applies, state the VAT amount (or at least the rate) and don't add it to the total. If your software can't show the amount, the words "customer to account to HMRC" plus the rate is enough.
In Xero there's a tax rate called Domestic Reverse Charge @ 20% (VAT on Income). Use that one. Don't put it through as zero-rated, that's how the VAT return ends up wrong quarter after quarter. Want to sanity-check the numbers? The CIS calculator does the reverse-charge maths too.
This is where it goes on the return, because it's not obvious and the software doesn't always tell you.
| You're the subbie (sending the invoice) | You're the contractor (paying it) | |
|---|---|---|
| Box 1 — VAT on sales | Nothing for reverse-charge sales | Add the reverse-charge VAT here |
| Box 4 — VAT reclaimed | Your normal purchases as usual | Reclaim the same VAT here (net nil if you can recover it all) |
| Box 6 — net sales | Net value of the reverse-charge sale | Don't put the purchase here |
| Box 7 — net purchases | — | Net value of the purchase |
Reverse-charge invoices can't go through the cash accounting scheme; they're accounted for on the invoice date. You can stay on cash accounting for everything else.
Before the reverse charge, £10,000 a month of labour meant £2,000 of your customers' VAT sat in your account until the quarterly return. Not really yours, but useful. Under the reverse charge it never arrives, and because you're still claiming VAT back on materials, diesel and the van, a lot of subbies end up owed money by HMRC every quarter. If that's you, go monthly and get it back twelve times a year instead of four.
Switching to monthly returns is done in your VAT online account (change your return frequency). HMRC say it outright: subbies under the reverse charge often become repayment traders.
On the flat rate scheme? Reverse charge sales don't count towards your flat rate turnover, and you still can't claim the VAT back on what you bought for those jobs. If most of your work is reverse charge, the scheme's probably costing you money. Ten minutes on the phone and I'll tell you either way.
Charge VAT when you shouldn't and the contractor bounces the invoice, or pays it and then wants the VAT back off you after you've spent it. Miss it when you should have used it and you've under-invoiced, and now it's credit notes and awkward phone calls. HMRC's soft-touch period on this ended years ago.
On the £249 and £395 plans I set the reverse charge up properly in Xero, check every invoice before it goes out, do the monthly CIS return and move you to monthly VAT returns if you're owed money. Those two plans are plus VAT, which you'll be claiming back anyway. First month's free, no card, nothing to cancel.
WhatsApp me a reverse charge question See the plans — £69 to £395Yes, normal rules. The reverse charge only exists between two VAT-registered businesses on CIS work where the customer is selling the work on. A homeowner isn't VAT registered and isn't in CIS, so you charge VAT as usual.
Not today. If your turnover's heading for £90,000 it becomes your problem the day you register, and it changes your cash flow overnight, so better to see it coming.
A business that uses the building rather than selling the construction on. A shop refitting its own premises, a landlord doing up their own block. They have to tell you in writing that they're an end user. Once they have, you invoice with VAT as normal.
Yes, if they're on the same invoice as the work. Supply and fit is one supply for VAT, so the whole invoice goes reverse charge, materials included. The only exception is when the labour part is 5% or less of the total, then normal VAT applies to the lot.
Credit note for the VAT, reissue the invoice with the reverse charge line on it, and correct the return if it's already gone in. Your customer can't claim back VAT you shouldn't have charged, so they'll be chasing you for it. Sooner is cheaper.
No. It only applies to standard and reduced rate work. New-build housing is zero-rated, so there's no VAT to reverse. Snagging or later work on the same house can be standard rated though, so check each job on its own.
Reverse charge sales are left out of your flat rate turnover, and you can't reclaim VAT on the purchases for those jobs either. A subbie doing mostly reverse charge work is usually worse off on the scheme. Whether to leave depends on your mix of work.
No. Reverse charge sales and purchases can't go through the cash accounting scheme. You can stay on it for everything else, but the reverse charge invoices are accounted for on the invoice date.
1 March 2021. It was put back twice before that, which is why some people still think it's coming.
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