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VAT Reverse Charge and CIS relationship

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Hi,

I have a client (sub-contractor) in the CIS industry, he recently did a job and in his invoice he say 50% of the cost is Labor. However, he was paid all the money in the invoice except VAT charges (because VAT reverse charge applied). The fact that VAT was with held by his client, tells me that he was dealing with a contractor and therefore should have suffered CIS charges on the 50% labor charge. I have asked the client to go back to his client and confirm and he came back and just answered no CIS suffered.

Is this correct? can there be a situation where VAT is withheld but CIS is not charged? should i insist that they go back and get cis sorted?

thanks,

Replies (12)

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By doubletrouble
15th Oct 2021 11:40

Did your client invoice stating that the work was subject to DRC because the work fell within the CIS? if so it is down to the Contractor to deduct the correct tax,
Could it be your client has gross status and no deductions are necessary?

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By Luke Spooner
15th Oct 2021 12:31

Doesn't sound correct.
In my experience I've found that CIS and VAT often get confused by sub-contractors who aren't finance minded because they are both 20%.
If his invoice had labour charges on it, and he is a net status for CIS, then he most definitely should have been deducted CIS tax from the main contractor.
Using £1000 invoice as an example, with 50% labour and VAT at standard rate it should be as follows:
Labour = 500
Materials = 500
Total Net Invoice = 1000
Less CIS* = (100)
Less VAT* = 0
Total Payment = £900
*CIS - is £100 because 500x20%
*VAT - is zero because the reverse charge applies if his work is within scope of CIS and his client is not an 'end user' or 'intermediary supplier'.
To directly answer your question, in this scenario I don’t know of a situation where CIS wouldn’t apply if your client is net status. Could they be gross?
I'd say they need to sort it, depends how much you want to push them, you can bring a horse to water but to make it drink is another matter haha.
Hope that helped.
Luke

Thanks (3)
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By Paul Crowley
15th Oct 2021 12:27

Get the remittance advice or statement from contractor
Why was subcontractor charging VAT?

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Replying to Paul Crowley:
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By Mama Msifu
15th Oct 2021 14:57

His turnover is over £85,000.

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By Mama Msifu
15th Oct 2021 14:56

Hi all,

thanks for your responses.

i just checked my clients invoice, he didn't mention work falls under DRC. However, the contractor withheld VAT but didn't charge CIS. my client does not have gross status because he has paid CIS while working with other contractors.

so like the example Luke shared, i would expect him to receive £900 but he was paid £1000.

I think i will have to educate my client a little on how to construct his invoices better.

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By doubletrouble
15th Oct 2021 15:43

Your client should make reference to DRC when invoicing, but it is down to the Contractor to make the correct CIS deductions not your client

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By Sandnickel
15th Oct 2021 16:01

If no CIS was suffered then VAT should be paid as the contractor has determined that the job falls outside the scope of CIS or is himself not registered.

If DRC applies then CIS should be deducted. The contractor can't pick and choose which bits they want to follow.

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Replying to Sandnickel:
RLI
By lionofludesch
16th Oct 2021 11:39

Sandnickel wrote:

If no CIS was suffered then VAT should be paid as the contractor has determined that the job falls outside the scope of CIS or is himself not registered.

If DRC applies then CIS should be deducted. The contractor can't pick and choose which bits they want to follow.

Agree. It's both or neither.

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By Mama Msifu
17th Oct 2021 20:20

I think the contractor was correct not charging CIS, i found this in gov.uk

https://www.gov.uk/what-you-must-do-as-a-cis-contractor/who-is-covered-b...

CIS also does not apply if you’re a deemed contractor paying for:

- work on property (that is not for sale or rent) for your own business use
- a construction contract worth less than £1,000 excluding materials - you must call the CIS helpline to get an exemption

My clients labor charges were less than £1,000 and will have to check if his client is a deemed contractor.

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Replying to Mama Msifu:
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By doubletrouble
17th Oct 2021 21:17

But if CIS does not apply then the work will not fall within the DRC, as said above you can’t have both ways

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Replying to Mama Msifu:
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By doubletrouble
17th Oct 2021 21:18

Sorry duplicate

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Replying to Mama Msifu:
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By doubletrouble
17th Oct 2021 21:19

Sorry triplicate

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