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Construction Industry Scheme (CIS) Reverse Charge

Created on  | Last modified on 

Summary

This guide explains how to process CIS Reverse charge in Sage 50cloud Accounts.

Description

The VAT charge on construction services changed in March 2021, as a result of new anti-fraud rules introduced by HMRC. Sage 50cloud Accounts includes features to deal with these changes, such as new tax codes to use. Let's take a look at them now.

TIP: For more information you can visit our CIS Domestic Reverse Charge Help Centre.

Resolution

Tax codes for CIS Reverse Charge

We introduced two tax codes in Sage 50cloud Accounts v26 and above:

  • T21 - where CIS Reverse Charge Standard Rate applies.
  • T26 - where CIS Reverse Charge Reduced Rate applies.

You can use these tax codes if you're the subcontractor or the main contractor, to ensure the VAT Return is correct. You must use them for both your sales and purchase transactions, where domestic reverse charge applies

If tax code T21 or T26 is already in use, you should use the next available tax code.

To have these tax codes in your software automatically, you must have Sage 50cloud Accounts v26 and above.

TIP: You can download and install v26 and above from our Installation Help Centre.

If I don't use Sage 50cloud Accounts v26 or above?, you can use our handy Which code do I use for CIS Reverse Charge in v25 and below? guide.


How do the tax codes work?

Under reverse charge the responsibility for paying VAT to HMRC moves from the subcontractor to the main contractor. In most cases this VAT will be recoverable for the main contractor. When you use the T21 or T26 tax code, you only need to enter the net amount, the VAT calculation for the VAT Return completes automatically.

 TIP: You can also use the new tax codes can if you post invoices from third party applications.

Standard VAT

  • When a subcontractor uses tax code T21 or T26 on an invoice for their main contractor, Box 6 of the VAT Return, total value of sales excluding VAT, is updated with the net amount of the sale.
  • When a main contractor uses T21 or T26 to record their purchase from the subcontractor, the net value of the purchase affects box 7 of the VAT Return, total value of purchases excluding VAT, and the VAT value affects boxes 1 and 4 of the VAT Return. The VAT is paid and reclaimed on the same VAT Return, this is often termed Notional VAT.

VAT Cash Accounting

VAT Cash Accounting rules do not apply to reverse charge transactions. So where reverse charge applies and you use the T21 or T26 tax code, the values from the invoice or credit will update the VAT Return, not the payment or receipt as you'd expect under VAT Cash Accounting.

Flat Rate VAT

Flat Rate scheme rules do not apply to reverse charge transactions. If the subcontractor or main contractor uses the Flat Rate scheme, they should account for reverse charge transactions outside of the scheme using tax code T21 or T26.


Invoices and credit notes

If you use the T21 or T26 tax code, the invoice or credit note produced in Sage 50cloud Accounts v26.2 and above includes the following text on standard layouts automatically:

  • Invoice text - 'Customer to pay output tax of £X to HMRC’
  • Credit note text - 'Customer to account for output tax of -£X to HMRC'

Can't see CIS Reverse  Charge message on your invoice or credit note layout?

If the CIS Reverse Charge messages don't appear on standard layouts, you can refer to our handy guide:

 

 

 

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Sage 50cloud Accounts CIS module

The Sage 50 CIS v2 module for Sage 50cloud Accounts is fully compliant with CIS legislation. You can use it to produce CIS Returns and submit them to HMRC online.

Find out more >