Domestic reverse charge

Domestic reverse charge

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I have a client who subcontracts to a builder... the contractor refuses to follow the cis scheme. 
I am aware that is the contractors problem but my client has asked where he stands with regard to the donestic reverse charge. I presume he would charge vat? Thanks 

Replies (25)

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By VATs-enough
10th Sep 2021 18:50

Yes

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By Matrix
10th Sep 2021 18:52

No

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Replying to Matrix:
RLI
By lionofludesch
10th Sep 2021 19:42

Oooh - a casting vote.

I'll go for No. Just because the contractor doesn't comply doesn't mean the subcontractor shouldn't.

Also, how will he know, when issuing his bill, that the contractor won't deduct CIS tax ?

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By Sandnickel
10th Sep 2021 19:47

Its a no from me also.

On a webinar with HMRC the speaker confirmed that the decision to apply DRC rests with the subcontractor.

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By Paul Crowley
10th Sep 2021 21:08

The trouble is that HMRC do not follow their own advice
Subbie needs to make clear on his invoice exactly what he is doing

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By VATs-enough
10th Sep 2021 22:07

Respectfully disagree with those saying No

Anyone supplying construction services is meant to check the CIS status of their customer. If the customer is not CIS registered, normal VAT rules apply. This point is clear in HMRC's guidance and supplier flowchart.

In this instance, we have been told that the main contractor is not CIS registered, and therefore will not be making tax deductions (not lawfully anyway).

Trying to understand why you think that DRC can still apply?

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Replying to VATs-enough:
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By lionofludesch
10th Sep 2021 22:24

VATs-enough wrote:

In this instance, we have been told that the main contractor is not CIS registered, and therefore will not be making tax deductions (not lawfully anyway).

Well, that's not what was said. He may be registered but failing to deduct tax. Nor do we know whether he's an end user.

Perhaps the OP could enlighten us.

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Replying to lionofludesch:
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By VATs-enough
11th Sep 2021 00:48

"Refuses to follow the CIS scheme"

I guess that could mean they ARE registered for CIS, and being non compliant, didn't think of it like that. Just not how I read the OP comment. In that event, I agree it could be possible that DRC applies - provided the subbie checks that the contractor is CIS registered.

If the contractor is the end user, and discloses such to the subbie, then DRC certainly not in play

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Replying to VATs-enough:
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By Matrix
10th Sep 2021 22:31

No they check whether the supply is within the scope of CIS. A sub-contractor would not know a contractor’s status.

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Replying to Matrix:
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By VATs-enough
11th Sep 2021 00:40

Sorry, but that is incorrect.

The supplier must check the customers CIS status as per the supplier flowchart at section 25 of the (not so) technical guide:
https://www.gov.uk/guidance/vat-reverse-charge-technical-guide#flowcharts

And as stated in the HMRC guidance for suppliers:
https://www.gov.uk/guidance/how-to-use-the-vat-reverse-charge-if-you-sup...

Please tell me I am reading this wrong ?!

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Replying to VATs-enough:
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By Matrix
11th Sep 2021 01:55

Just because mikeyban’s client’s customer says he is not going to report it (whether registered for CIS or not) doesn’t mean there is no DRC.

Thanks for your support in the previous debate regarding end user. Your argument for the DRC not to apply was because no CIS return was required - so why do you think if a CIS return IS required that there can ever be no DRC?

https://www.accountingweb.co.uk/any-answers/end-user?page=1

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By mikeyban
11th Sep 2021 00:26

The contractor is the final person in the chain dealing with the general public but according to my client ‘ doesn’t want the hassle of CIS’…

Obviously these sort of situations are not defined in HMRC’s world of Eutopia….

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Replying to mikeyban:
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By VATs-enough
11th Sep 2021 00:53

So pretty clear the contractor is not an end user then.

But not clear if contractor is CIS registered or not. If CIS registered, your client is on solid ground to apply DRC. If not, normal VAT rules apply.

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Replying to VATs-enough:
RLI
By lionofludesch
11th Sep 2021 07:59

I'm going to change my mind and say charge VAT.

Partly - well, mainly, actually - because I'd like to see whether the contractor disputes the VAT charge on the grounds that he should be deducting CIS tax.

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By doubletrouble
11th Sep 2021 07:55

I agree with VATs-enough, if the customer is not CIS registered then the DRC should not be applied, however when the rules were laid out I do not think it was taken into consideration that everybody who should be registered for CIS would be.

I had a similar thing with one of my clients a few weeks ago, a one off job that should have fallen within the scope of CIS, the contractor was not reporting under CIS and no verification was done so I told my client to charge VAT which he did and received it, whether VAT was charged incorrectly is now down to the contractor, at least my client will not be asked to pay over the VAT if at a later date it was proved that DRC was wrongly applied, better to be safe than sorry.

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Danny Kent
By Viciuno
11th Sep 2021 12:27

I vote no. The classification on the DRC status lies with the subcontractor.

The flowchart that HMRC provides doesn't ask "Is CIS deducted" it says "is the supply within the scope of CIS".

Whether or not a supply is within the scope of CIS is a statement of fact, not a choice so I don't believe the contractors refusal to operate the scheme correctly is relevant.

I take it from the OP's post that the contractor is not operating the CIS scheme at all rather than disputing the works are within the scope.

I would encourage client to submit invoices with CIS and DRC. If CIS is deducted and not reported this is easily proved to HMRC when they inevitability query your repayment claim by providing invoices and bank statements. I've never had HMRC refuse to pay CIS suffered with this evidence. If you had an email/text/facebook message from the contractor advising they would not be paying CIS to HMRC then all the better to support your claim. HMRC can then investigate the scale of the non compliance properly if they so wish. If they do pay the CIS then remove it from your claim.

Encourage client to find a more reputable contractor to work with.

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Replying to Viciuno:
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By lionofludesch
11th Sep 2021 12:34

Viciuno wrote:

Encourage client to find a more reputable contractor to work with.

Often easier said than done in this imperfect world.

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Replying to Viciuno:
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By doubletrouble
11th Sep 2021 12:55

Viciuno wrote:

I vote no. The classification on the DRC status lies with the subcontractor.

The flowchart that HMRC provides doesn't ask "Is CIS deducted" it says "is the supply within the scope of CIS".

Whether or not a supply is within the scope of CIS is a statement of fact, not a choice so I don't believe the contractors refusal to operate the scheme correctly is relevant.

I take it from the OP's post that the contractor is not operating the CIS scheme at all rather than disputing the works are within the scope.

I would encourage client to submit invoices with CIS and DRC. If CIS is deducted and not reported this is easily proved to HMRC when they inevitability query your repayment claim by providing invoices and bank statements. I've never had HMRC refuse to pay CIS suffered with this evidence. If you had an email/text/facebook message from the contractor advising they would not be paying CIS to HMRC then all the better to support your claim. HMRC can then investigate the scale of the non compliance properly if they so wish. If they do pay the CIS then remove it from your claim.

Encourage client to find a more reputable contractor to work with.


The supply can not be within the scope of CIS unless the contractor is CIS registered!
Whether they should be or not is a completely different question, but seeing as they are not then DRC can not apply
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Replying to doubletrouble:
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By Matrix
11th Sep 2021 13:48

DRC doesn’t apply to excepted supplies where excepted supplies are those that are not required to be included in a CIS return.

Wouldn’t the supplies be “required” to be included in a CIS return?

I am still thinking about the purpose of Q4 on the flowchart.

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Replying to Matrix:
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By doubletrouble
11th Sep 2021 13:56

Yes they would be required and I agree they should be included normally but seeing as a CIS return does not exist due to no registration then they can not be included so it follows that DRC can not apply

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Replying to doubletrouble:
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By Matrix
11th Sep 2021 14:04

But that is not the wording in 8)1)a) so DRC applies. https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

I can’t believe the different views again and agree with the post below that the rules have not been made clear enough.

Do you know what Q4 on the flowchart is for since it can’t be for when a contractor has failed to meet their CIS obligations?

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Replying to Matrix:
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By doubletrouble
11th Sep 2021 14:33

Matrix wrote:

But that is not the wording in 8)1)a) so DRC applies. https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

I can’t believe the different views again and agree with the post below that the rules have not been made clear enough.

Do you know what Q4 on the flowchart is for since it can’t be for when a contractor has failed to meet their CIS obligations?

I agree with all you say but there has been no consideration for those that do not comply with their CIS obligations when setting out the rules,
Yes the work is within the scope of CIS, yes the work should be reported on a return and yes DRC should apply.
But because there is no CIS registration then it does not need to go on a return(even though it should) so in that case DRC can not apply.

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By GHarr497688
11th Sep 2021 13:57

If this questions causes so much debate and confusion maybe HMRC have made a rule that isn't clear enough for Accountants let alone Taxpayers. Any rule that opens up a debate isn't good. If the contractor supplies a CIS registration and VAT number the DRC applies - if not then surely is can't apply.

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Replying to GHarr497688:
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By doubletrouble
11th Sep 2021 15:19

GHarr497688 wrote:

If this questions causes so much debate and confusion maybe HMRC have made a rule that isn't clear enough for Accountants let alone Taxpayers. Any rule that opens up a debate isn't good. If the contractor supplies a CIS registration and VAT number the DRC applies - if not then surely is can't apply.


Yes it should be that simple, Sub-contractor asks the contractor is this work within CIS? If the answer is yes and they are not the end user then DRC applies if the answer is no then charge VAT as usual.
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Replying to GHarr497688:
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By lionofludesch
14th Sep 2021 16:47

GHarr497688 wrote:

If this questions causes so much debate and confusion maybe HMRC have made a rule that isn't clear enough for Accountants let alone Taxpayers.

It isn't even clear enough for HMRC from what I've read on this forum

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