A major change in the way Subcontractors invoice Contractors for services provided within the construction industry (being CIS supplies) takes effect from 1st October 2019.
In summary, where a Subcontractor makes a CIS supply of services to a Contractor then VAT should not be charged by the Subcontractor and VAT should not be claimed by the Contractor.
The new rules do not apply to supplies by a Subcontractor (SC) or a Contractor (C) to an end user.
The following cover certain aspects of the rules in greater detail. The links are to the HMRC guidance notes:
Visit the HMRC flowchart to help decide if the new rules apply.
The changed treatment only applies to supplies that are liable to VAT at the standard or reduced rate AND are payments required to be reported through the CIS scheme.
If the rules apply then the SC does not charge and the C does not pay VAT on any invoice. For the record the C should reflect the VAT not paid as output VAT and Input VAT on the VAT return, thereby no net VAT is payable by the C. See HMRC notes on completion of VAT returns.
HMRC appear to understand that the new rules are likely to create some confusion and difficulties and have indicated a ‘light touch’ approach for the first 6 months.
Where you have a mixed supply (where part only caught by these rules) the whole of the charge is liable to the reverse charge treatment.
See clarification of how invoices should be presented.
Please do contact us if we can provide any further assistance.