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Posted Fri, 16 Jul 2021 10:56:10 GMT by Hamacleod1
Hi there, I'm having trouble understanding how the new VAT reverse charge impacts on the old CIS process. As I understand it, previously under CIS, where we were the customer, and we withheld CIS from supplier payments, we recorded this in our monthly CIS returns and the amount was added to our PAYE/NIC liabilities. Where we were the supplier and our customer withheld CIS deductions from us, we recorded this in our monthly payroll EPS, and this was subtracted from our PAYE/NIC liabilities. Now with the VAT reverse charge, if we are the supplier, we would raise an invoice stating that the VAT reverse charge applies and not charge the customer VAT. The customer must account for the VAT to HMRC. In this case, we haven't suffered a deduction, so we wouldn't need to record it in our monthly payroll EPS? Similarly, if we are the customer and receive a VAT reverse charge from a supplier, we account for the VAT (input and output VAT on the return so it nets to nil) and so we don't have to submit a monthly CIS return as we have not withheld a deduction from our supplier? Please help! Is any of the above correct?! Thanks :)
Posted Fri, 20 Aug 2021 15:50:46 GMT by HMRC Admin 20
Hi Hamacleod1,

The introduction of the VAT reverse charge has not changed how businesses should apply CIS to payments they make or receive. The reverse charge is only a change to VAT rules but uses the CIS definition of construction operations as the basis for defining what services should be subject to the reverse charge. Therefore, as a general rule where the services are subject CIS the reverse charge will also apply but there are exceptions, for example where a customer who qualifies as an end user and notifies their subcontractor they are an end user. 

Where the reverse charge applies the VAT is paid over to HMRC by the customer using box 1 of their VAT return and not the subcontractor, which is the case under normal VAT rules. Therefore if there are also CIS deductions to be made, the customer will also withhold that amount and account for that through the CIS process as usual.

Thank you.
 

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