VAT domestic reverse charge in a mixed supply

Kitchen supplier invoices kitchen units and a separate invoice for supply & fit worktop (under CIS)

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Hi, 

I work for a construction company and we normally apply the VAT DRC to all our CIS suppliers. But we are having some issues with a Kitchen Company because they raised 2 invoices for the same project: a Supply only invoice for kitchen units, and a separate invoice for supply and fit worktops.
They are CIS registered and they expect us to apply the VAT reverse charge on the supply and fit invoice, but not on the supply only invoice.
I have read through the guidance and I cannot see anything to support their claim. https://www.gov.uk/guidance/vat-reverse-charge-technical-guide 
This is where I understand I should apply the domestic reverse charge to both invoices. But I am not sure if this is right or I am missing something, their accountant does not agree with me. Any help would be very much appreciated!! 

Separate contracts for labour and materials

If a customer enters into 2 separate contracts with the same supplier, one of the contracts is within the scope of the Construction Industry Scheme, and the contracts are linked, with both to be carried out on the same site, the reverse charge will apply to both contracts (subject to the 5% disregard) as they comprise a single supply for VAT purposes.

Charges for labour, together with the materials supplied in the course of the supply of labour, should not be separated to avoid applying the reverse charge to the supply of materials.

Splitting of invoices for supply and fix orders

If a customer places a single supply and fix order within the scope of the Construction Industry Scheme with a supplier, the reverse charge will apply to the full value of the order even if the supplier issues separate invoices for the supply and fix elements.

The Single supply concept applies only in relation to VAT and not to the Construction Industry Scheme. We look at each order separately under Construction Industry Scheme rules, so any separate order for the supply of materials or the hire of plant will not be subject to the Construction Industry Scheme. But for VAT purposes the materials or hire (with labour) are treated as one overall supply, subject to the same VAT treatment.

Replies (9)

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By Sandnickel
15th May 2024 17:03

You are correct that they should both be included within the DRC.

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Replying to Sandnickel:
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By Paul Crowley
15th May 2024 17:14

+1
Sounds daft to me. Why would the subcontractor want to charge VAT?

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VAT
By Jason Croke
15th May 2024 17:35

+1

Can't see why they are splitting this into two supplies and your reading of the rules are correct, can't really split goods from labour in most normal situations.

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By kim.shaw-and-co.com
15th May 2024 22:16

Suggest you dispute/don't pay the supply-only invoice which includes VAT, send the guidance cited above to the supplier's accountants and advise the materials invoice will be paid when it is correctly issued without VAT as a supply within the DRC.

You'll then no doubt need to 'VAT-block'/disclaim the DRC input tax on any white goods etc. incorporated within dwelling(s) under construction.

The supplier seems to consider there are separate contracts - if that is the case then they should demonstrate how that is achieved in relation to a single site (which you don't specifically state is the case here but is implied from your inclusion of guidance relevant to such circumstances).

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Ivor Windybottom
By Ivor Windybottom
16th May 2024 09:33

Are you sure this is one supply?

One seems to be supply only of kitchen units, the other for fitting worktops.
These are not necessarily the same supply. For example, when I last had a kitchen fitted the worktop fitter was a separate contractor and specialist in that field.

Maybe that is why they don't consider it a linked contract situation?

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Replying to Ivor Windybottom:
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By Egam
16th May 2024 10:18

That's exactly the issue.
How do you separate or distinguish the "Supply" when it is one same company supplying the kitchen units and the worktops (with instalation included)!?

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By rmillaree
16th May 2024 10:16

i think the problem here isn that the guidance can can complicated super quick and is probably well over complicated.

by far the best thing to do is for technical bods in both parties to have a quick chat to see what the issue is - normally i would sufggest that is likely to overcome any hurdles here.

if there is the scope to treat all work as being rc and both parties agree and that is the simplest option - then i dont se why both parties would not take up that option if there is some dispute here

this is explicity confrimed as being ok in the techncial manual and would imho probably keep both parties happy due to clarity.

Also, if 2 parties have already had a reverse charge service between them on a construction site, for convenience they can both agree that any more construction supplies on that site can be treated as reverse charge services.

note on a technical point the supplier may be taking theviewpoint that the two contacts are " not linked" if from their viewpoint one is simple supply of goods and has nothing specifically to do other supplies - if something like is the sticking point - if you both agree to use the "agree toi rc everything bit" then the technical fallout would hopefully become irrelevant.

imho as long as both parties are clear on invoicing i would really over worry about the issue for one off invoice if there is plausible explanation - eg supplier sees these as unconnected supplies. Better to do what you are doing though and get agreement as that makes life easier going forward if they know and are happy to use the "easiest option that suits both parties"

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By Egam
16th May 2024 11:50

Thank you very much to all for the input, I stood my ground and they now agreed on applying the vat reverse charge to all the invoices, problem solved! :)

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Replying to Egam:
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By FactChecker
16th May 2024 17:05

And that, ladies and gentlemen, is how to do it as a new member ... clarity on the issue / evidence of research / open-minded listening / polite responses / and even a 'thank you' to end the thread on a high.

And well done for getting all parties to agree a sensible way forward!

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