The CIS VAT domestic reverse charge measure will apply to supplies of construction work from 1 March 2021. It only applies to construction supplies made by a business to business and when all the following criteria are met:
- The supply for VAT consists of construction services and materials.
- Both supplier and customer are registered for VAT and CIS
- Either a Std or reduced rate of VAT transaction.
- Between a UK VAT registered supplier and UK VAT registered customer.
- The customer intends to make an ongoing supply of construction services to another party.
- The supplier and customer are not connected.
The CIS VAT reverse charge will not be applicable in the following circumstances
- Exempt of VAT construction services supplied
- Supplies that are not covered by the CIS, unless linked to such a supply.
- Supplies of staff or workers.
The CIS VAT reverse charge does not apply to taxable supplies made to the following customers:
- A non-VAT registered customer.
- ‘End Users’ i.e. a VAT registered customer who is not intending to make further on-going supplies of construction.
- ‘Intermediary suppliers’ who are connected e.g. a landlord and his tenant or two companies in the same group.
When the reverse charge applies the customer accounts for the supplier’s output VAT.
The introduction of the reverse charge will require a significant approach in many CIS businesses
It will require a significant change of approach in many CIS businesses:
- Staff will need to be trained to identify relevant CIS contracts and End-Users.
- Accounting and bookkeeping systems will need to be modified to cope with the new invoicing and reporting obligations.
- The use of the VAT Flat Rate Scheme and Cash accounting may not be possible.
- Cash flow will be affected and those at the start of the supply chain may become VAT repayment claimants: they need to consider whether to file monthly returns.
- It may require a business that is the recipient of the supply to VAT register.