VAT on Labour 0%

CIS Reverse Charge Labour rate

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I have received an invoice today from a subcontractor, who is verified with HMRC and is on Net Pay status for CIS.  They always split their invoices to show Labour and Materials separately. The reverse charge has been applied to invoice. 
However I have noticed that they have put Labour at 0% charge and Materials at 20% on the invoice, so the reverse charge Vat total is only on the materials? Why would they not be charging vat on Labour?
When we make payment 20% is detucted on the labour element for the CIS Payment. 
I use sage codes 6010 labour and 6011 Materials and then use T21 for the Vat reverse charge. But looking at the invoice I should of posted the labour to tax code T0??

Any help would be a appreciated.  

Replies (5)

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By rmillaree
10th Apr 2024 18:48

looks like simple mistake - easy done i have alot of sympathy for poor subbies trying to implement these somewhat nonsensical rules.

If you cofnrim to subby that work is standard rated albeit subject to DRC i am sure they will provide revised invoice or confirm that that should read as 20% albeit reverse charge.

I am presuming the work is NOT zero rated newbuild.

you couild add caveat to say if you disagree please provide information as approrpiate linked to specific vat guidance blah

Thanks (1)
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By [email protected]
10th Apr 2024 19:15

Thank you for your reply. I'm only half way through my level 3 AAT course, but CIS and Reverse charge is not actually covered so doing my best to learn the rules in what seems to be a massive minefield with lots of people applying their own logic.
It's no new build, when I questioned it they replied that the labour they pay is for staff who are not PAYE. I feel like they are getting confused with the cis payment that is automatically deducted when they pay their workman.

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Replying to [email protected]:
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By rmillaree
10th Apr 2024 19:41

there are many misconceptions here thats why requesting link to guidance turns the heat up slightly - or perphaps ask them to double check with vat office - their accountant.

Note there are many slightly weird scenarios here - eg if thye are labour agency it could be that its not reverse charge - but 20% would apply if that was the case.

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By [email protected]
10th Apr 2024 19:57

I will respond with how you instructed and see how they reply.
They are definitely not an agency but their staff are all self employed. It's basically a window fitting firm so they supply the windows being the materials and labour is for the fitting of said windows.
I'm slightly concerned I have missed previous invoices that would of been sent like this. I need to check the files tomorrow. I'm not sure how I missed it.
From my account I have processed all invoices to T21 so hopefully it's just a case of them updating their invoices more for their own accounts when it comes to the vat.

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By Truthsayer
12th Apr 2024 13:04

DRC applies to the whole invoice, not just the labour element. This is a common mistake by subbies. Either there should be 20% VAT on the whole invoice if it is outside the scope of CIS, or 0% on the whole invoice if it is within CIS. If within CIS, it should still be split between labour and materials, and CIS should only be deducted on the labour element, but the whole invoice should have 0% VAT.

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