From 1 March 2021, new VAT rules affect standard and reduced VAT rate supplies that are subject to CIS (or would be CIS if not for a gross payment registration). Zero rated supplies and any supplies that CIS cannot apply to are not affected by these new rules.
These new rules only apply to supplies (sales) made to customers that are VAT and CIS registered. Supplies to non-VAT registered customers and supplies non-CIS registered customers are not affected.
Any supplies to an end user are also not affected. These new reverse charge rules only apply within the supply chain.
The supplier will no longer charge VAT. Instead the recipient of the supply will charge themselves VAT. This is known as reverse charge VAT.
The new VAT treatment (supplier doesn’t charge / recipient charge themselves) applies to the whole invoice including materials. This is different from CIS which only applies to the labour element.
Purchases – buying CIS type services and related goods
REVIEW! Which of your suppliers send you invoices that are subject to CIS when you pay them (or would be except the supplier is registered for gross payments)?
These suppliers must no longer charge you VAT on supplies. If they do, you need to reject their invoice and only pay the net amount.
You need to self charge the VAT – even if the supplier is not VAT registered and wouldn’t therefore have charged VAT anyway!
You can deduct the VAT you charge from your VAT bill (claim input tax) in the normal way (subject to normal VAT deduction rules).
Sales – supplying CIS type services and related goods
STOP! Which of your sales meet ALL of these criteria:
- is subject to CIS deduction by your customer (or would be if you we’re not registered for gross payments)?
- is to a VAT registered business?
- the result of your work will be charged on to someone else (ie your customer is not the end consumer / final customer)?
These sales are effected by the new rules – DO NOT CHARGE VAT! Instead your invoice must state “Subject To Reverse Charge VAT”.