Reverse charge VAT and the construction industry scheme (CIS)

An overview of reverse charge VAT for the construction industry scheme (CIS) in Sage Accounting.

When does VAT reverse charge and CIS work together?

VAT reverse charge applies to some building and construction services reported within the scope of CIS.  When it applies, the supplier doesn't charge VAT and the customer accounts for it on the VAT Return.

The rule applies to some standard and reduced-rate construction services between UK VAT-registered companies, when the payment falls within the scope of CIS. HMRC uses CIS to define the scope, but VAT reverse charge isn't part of CIS.

It doesn't apply in every CIS situation. HMRC excludes some supplies, including workers supplied by employment businesses, and there are separate rules for end users and intermediary suppliers.

For more details, read HMRC's VAT reverse charge for building and construction services manual.

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How it works in Sage Accounting

We've created the following articles to support you:

• Set up a new contact as a subcontractor for CIS (and reverse charge)
• Set up a contact as a contractor for CIS (and reverse charge)
• End users and intermediaries for Reverse VAT charge
• How reverse charge affects your ledger accounts
• Record a CIS invoice from a subcontractor
• Create and send a CIS sales invoice to a contractor

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How the VAT reverse charge shows on the VAT return

VAT reverse charge can apply to qualifying construction services reported within CIS.

VAT reverse charge affects the VAT Return when it applies, but CIS alone doesn't.

If you use VAT Cash Accounting, reverse charge invoices show on the VAT Return when you raise them, not when you pay them.

With the Flat Rate VAT scheme, Sage Accounting puts reverse charge sales in box 6 but excludes them from the flat rate calculation. Reverse charge purchases are reported outside the scope of the flat rate VAT. Transactions display in boxes 1, 4 and 7, as on the standard VAT scheme.

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Impact on allocations

If you issue a credit note for a CIS invoice that uses VAT reverse charge, apply VAT reverse charge to the credit note too.

If the credit note doesn't match the original invoice, an error message displays when attempting to allocate it.