What is the CIS domestic reverse charge for VAT in construction?

Full answer

The Construction Industry Scheme (CIS) domestic reverse charge is a VAT anti-fraud measure introduced on 1 March 2021. It applies to most standard-rated and reduced-rated construction supplies made between VAT-registered businesses where the CIS rules apply. **Who it affects** The reverse charge applies when: - Both the supplier and customer are VAT registered - Both are registered for CIS - The supply is standard or reduced-rated for VAT purposes - The customer is not an end user (e.g. they will use the services to make further onward supplies) End users (e.g. property developers who sell the finished building) and intermediary suppliers (who are connected to an end user) can opt out of the reverse charge by notifying their supplier in writing. **How it works** Instead of the subcontractor charging VAT, the main contractor self-accounts for VAT: they record both the output VAT (as if they charged it) and the input VAT (as if they paid it) in Box 1 and Box 4 of their VAT return. The net cash effect is usually nil, but the VAT is correctly declared. The supplier's invoice must state: "Reverse charge: VAT Act 1994 Section 55A applies" and show the VAT rate but £0 VAT. **Why it matters for cash flow** Subcontractors no longer collect VAT and pass it to HMRC — they receive net-of-VAT payments only. This may reduce cash flow if they previously used the VAT float. On the positive side, they may be entitled to repayment returns from HMRC more regularly. **What is excluded** Zero-rated supplies (e.g. new dwellings), exempt supplies, and supplies to connected companies in the same group are excluded.