The CIS VAT domestic reverse charge will apply to supplies of construction work from 1 March 2021 for those businesses registered under CIS. This change was due to commence in October 2019 but was delayed due to Brexit and the Coronavirus. The aim of the measure is to reduce VAT fraud in the construction sector with the customer accounting for both the output and input VAT on the same VAT return for supplies that it receives.
When the reverse charge applies, the customer accounts for the supplier’s output VAT. This will only apply to construction supplies made by a business to another business.
The reverse charge must be used when all the following conditions are met:
- The supply consists of construction services and materials.
- The supply is made at a standard or reduced-rate of VAT.
- The supply is between a UK VAT registered supplier and UK VAT registered customer.
- Both the supplier and the customer are registered for CIS.
- The customer intends to make an ongoing supply of construction services to another party.
- The supplier and customer are not connected.
The CIS reverse charge does not apply to any of the following supplies:
- Supplies of VAT exempt building and construction services.
- Supplies that are not covered by the CIS.
- Supplies of staff or workers.
The CIS reverse charge will also not apply to taxable supplies made to the following customers:
- A non-VAT registered customer.
- ‘End Users’ i.e. a VAT registered customer who is not intending to make further on-going supplies of construction.
- ‘Intermediary suppliers’ who are connected e.g. a landlord and his tenant or two companies in the same group.