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Understanding CIS and domestic reverse charge

How do I deal with these types of invoices and payments to subcontractors

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Hello again everyone

Ill start with what I understand on this topic. CIS stands for Construction Industry Scheme. So, when a job is taken by a construction company (a contractor) for say £12k including VAT, so £10k net. They then employ a subcontractor for say £6k, but no VAT is paid on this by the subcontractor and VAT cannot be claimed by the contractor. Instead the subcontractor pays CIS, which is similar to VAT in that it is 20%. However it is 20% of the total amount paid. So if £6k is paid to the subcontractor in this instance, CIS will be £1200 (correct me if I am wrong). Then the subcontractor will pay an individual who is essentially another subcontractor (e.g plumber) and he/she will pay CIS. What I want to understand about this is who has suffered CIS and who has had CIS deducted. Also, where does domestic reverse charge come into this and what exactly is it. I would also like to know the process for dealing with these types of invoices on VT software and also dealing with paying subcontractors on the Payroll Manager software.

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By VATs-enough
14th Sep 2021 00:05

Sounds complicated. I would suggest paying to speak to a CIS expert and a VAT expert, and a VT expert. Wouldn't bother with this free forum stuff.

But you figured out what CIS stands for, so you are halfway there....

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By lionofludesch
14th Sep 2021 00:17

Nobody "suffers" CIS. It's just money put into a piggy bank run by HMRC until the subcontractor's tax is worked out properly.

Domestic reverse charge is new and there are dozens of threads on this already. Look around six months ago, when it started.

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By David Ex
14th Sep 2021 01:04

You should ask for some basic training from your manager. It’s not really reasonable to ask random strangers on a forum to provide you with training for your job.

Once you understand the principles, then you can get into the details here:

https://www.gov.uk/guidance/vat-reverse-charge-technical-guide

https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-re...

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By Matrix
14th Sep 2021 06:54

VT link: https://www.vtsoftware.co.uk/transplushelp/domestic_reverse_charge_vat_f...

Moneysoft: https://moneysoft.co.uk/moneysoft-support/

It is complicated but I think you need to read up all about it yourself. Especially as your understanding is not quite correct.

You shouldn’t be trying to make bookings until you are confident. Seek help from your boss if you have one and don’t take on CIS clients yet if you are a practitioner!

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By SXGuy
14th Sep 2021 07:47

OK. I'll correct you cos your wrong.

Why has the vat been ignored by both parties simply because cis is envolved?

Makes no sense. One of them accounts for the others vat and pays it over to hmrc.

20% or 30% cis is calculated on the net and deducted from the payment.

Your question is way to complicated

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By rmillaree
14th Sep 2021 08:47

" What I want to understand about this is who has suffered CIS and who has had CIS deducted."
When you do sales work you "suffer" having cis deducted from income - as lionflush says this simply goes in the piggy bank to either reduce paye/cis tax you need to pay (ref staff subcontractors) IF you are limited - or otherwise be refunded at tax year end - if you are limited and have no paye/cis payable refund is stored tilk end of tax year.

CIS deducted is looking at things from the perspective of the other side - the person making the payment deducts the cis from thee gross value (excl vat) of payment made and pays the net amount. The difference is paid across to hmrc or is set against any cis "suffered" if there is available credit via that source.

In summary they are the same thing its that receiver "suffers" and payer deducts.

Ref reverse charge you need to do plenty of reading -flowchart linked below is useful here - when it comes to paying subcontractors you kinda flip things on their head but process is the same - if you are paying subcontractors you must establish if they are vat registered (ensure they tell you if status changes) and you should make clear to them you are not the end user and they should bill reverse charge if work is not zero rated they are vat registered the work is cis (and you are not an end user). Same applies in reverse when you are billing vat registered customers get their confirmation work is cis (from payers perspective) they are not end user and then bill reverse charge. Ideally both parties want to be in full agreement here before invoice is issued. Thedifficuly here is getting clients to understand what the heck is going on.

https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

Moneysoft will handle cis fine and dandy.

I don't use vt on a daily basis so am not best to advise - however quite often to keep acounting and vat treatment the simplest (most correct) (particularly if you are on cash acounting) - you may choose to process cis tax deducted from income and cis tax deducted from subcontractor paymnets via "dummy bank acount" - don't know what facility vt has automically sort to avoid this route but using a fake bank account tends to keep the vat / invoicing /accounting correct - albeit things can get fiddly if there are many cis entries !

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By Leywood
14th Sep 2021 10:01

Your boss is expecting far too much of a level 2 AAT student without training you properly.

I get that you might want to impress by getting folk on here to give you the answers, but really it is not the best way for you to learn and certainly not the best way for an employer to properly assess the development needs of their employee.

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Replying to Leywood:
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By Bilal trainee accountant
14th Sep 2021 20:37

I'm aat level 3 now actually

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Replying to Bilal trainee accountant:
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By Leywood
14th Sep 2021 22:07

Well done in passing level 2, but it’s still basic stuff your are learning and your employer is still taking the P

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By Bilal trainee accountant
14th Sep 2021 20:36

Thank you everyone for your replies, they have been very helpful

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