The Construction Industry Scheme (CIS) is a scheme to reduce tax on invoices produced by the self-employed or limited companies (called subcontractors) who provide labour within the construction industry to businesses within the construction industry (called contractors).
Under the CIS, contractors should deduct money from a subcontractor’s payments and send it to HM Revenue and Customs (HMRC). The deductions are counted as advance payments toward the subcontractor’s tax and National Insurance in the UK. Contractors have to register for the scheme.
The domestic reverse charge VAT legislation is a new change in the way CIS registered construction companies handle and pay VAT, and it is being introduced in the UK as of the 1st of March 2021.
It is an anti-fraud measure intended to counter criminal offences on the UK VAT system. It plans to cut down on ‘missing trader’ fraud, where businesses receive high net amounts of VAT from their customers but do not pay the VAT to HMRC.
This legislation will affect VAT registered construction businesses that supply or receive construction and building services reported under the Construction Industry Scheme (CIS). This means that the customer (contractor) will be responsible for the VAT due to HMRC instead of the supplier (subcontractor).
This process isn’t difficult to manage, but it is time-consuming as it is heavily reliant on good book-keeping and having quality systems in place. This is where Eworks Manager comes in; we help keep your billing documents in check and ensure you remain compliant at all times.
You can activate yourself as a registered contractor or subcontractor on the Eworks Manager system and provide your relevant deduction rate and taxpayer reference number.
Customers and suppliers will then automatically be assigned CIS deductions on Purchase Orders and Invoices for the relevant material or labour costs.
With the implementation of the Reverse VAT charges from 1 March 2021, Eworks Manager has worked closely with some of the leading accounting platforms to ensure all of our clients are compliant and that the headache of all the extra paperwork is that much lighter.
Our integration with Xero regarding the reverse tax is up and running, and the likes of Sage and QuickBooks will be soon to follow. If you would like to find out more, please feel free to contact us or book a demonstration with us.