CIS & the VAT Reverse Charge: A Plain-English Guide
subcontractors must do.
By Tom Fisher, Client Manager
Two sets of rules cause more confusion in construction than anything else: the Construction Industry Scheme (CIS) and the VAT domestic reverse charge.
CIS. Contractors deduct money from a subcontractor’s payment and pass it to HMRC. Register, verify each subcontractor (rates are typically 20%, 30% unverified, or 0% with gross status), deduct correctly, issue statements and file a monthly return. Miss a return and penalties start fast.
Subcontractors should register to avoid the 30% rate, and can reclaim overpaid deductions if records line up. The reverse charge: since March 2021, for many services between VAT-registered businesses the customer accounts for the VAT, not the supplier, which changed cashflow for a lot of subbies.
Get the systems right and it is manageable. Get it wrong and the penalties and cashflow shocks cost far more than good advice.
