Construction Industry Scheme (CIS) Tax

We offer for the CIS Tax……………

  • Registration with HMRC for the CIS tax
  • CIS Tax computation and the return submission to HMRC
  • Helping to register for “Gross Payment Status”
  • Guidance on when and how to pay the CIS tax
  • Preparing the CIS statement and payslip
  • Self assessment tax service for CIS subcontractors
  • Advice and other ad hoc services related to CIS tax

The VAT domestic reverse charge: what your construction business needs to know

The VAT domestic reverse charge: what your construction business needs to know

VAT is particularly complicated for the construction industry. Talk to us and we’ll explain the implications of the VAT reverse charge – and some of the other implications of industry-specific VAT rules.



The VAT domestic reverse charge came into operation in March 2021, introducing significant changes around how VAT is collected and paid within the construction industry.

So, how does the domestic reverse charge work?:

  • The domestic reverse charge applies to construction services in the UK, together with related materials, but not to materials supplied separately from any construction services.
  • It applies only to transactions that already fall under the Construction Industry Scheme (CIS), and only those where both the contractor and subcontractor are VAT-registered. Effectively, the VAT changes have extended the scope of the CIS scheme.
  • Accordingly, for services they supply to VAT-registered contractors, subcontractors require the contractor to handle and pay VAT over directly. This applies to both standard and reduced-rate supplies but not to zero-rated supplies.
  • The subcontractor will receive payment for the work and materials, less any CIS, but no VAT will be paid over. Contractors and subcontractors must be familiar with the new rules, and ensure that their accounting systems can handle this specific VAT process.
  • Subcontractors need their customers to disclose whether or not they are end users, as the domestic reverse charge will not then apply.

Effect on VAT Returns for contractors: Contractors need to enter the calculated output tax (sales times either the standard or reduced VAT percentage) in box 1 of the VAT Return but must not enter the value of these purchases in box 6. They may reclaim the input tax on their domestic reverse charge purchases in box 4 of the VAT Return and include the value of the purchases in box 7, in the normal way.

Effect on VAT Returns for Sub-contractors: Sub-contractors must not enter any output tax (VAT on sales) in box 1 of the VAT Return in respect of sales to which the domestic reverse charge applies, but must enter the value of the net sales in box 6.

The HMRC has created flowcharts that give you a good overview of how the VAT domestic reverse charges system works, depending on whether you’re a buyer or a supplier in the chain. You can view these here

Talk to us about the VAT reverse charge

As a subcontractor, you’re likely to experience cashflow pressures from the domestic reverse charge system, and that’s bad news for the financial health of your business.

You can no longer put the VAT you’ve collected into your business account and use that to aid your cashflow until it’s paid over as part of the normal VAT cycle. At the same time, affected contractors will no longer need to fund the VAT paid to subcontractors and then reclaim this through their VAT returns later.

As you can see, this is significantly different from the way most businesses deal with VAT, and your bookkeeping and invoicing systems will need to handle this new system. If you need assistance with this, please do contact us and we’ll walk you through the VAT reverse charge requirements.

Get in touch in you are unsure about any aspects of the VAT reverse charge and let’s find out how we can help you from here at The Stan Lee.

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How Does Construction Industry Scheme (CIS) Tax Work for Contractors?

How Does Construction Industry Scheme (CIS) Tax Work for Contractors?

How Does Construction Industry Scheme (CIS) Tax Work for Contractors?

How Does Construction Industry Scheme (CIS) Tax Work for Contractors?

You might be already familiar with Construction Industry Scheme (CIS) tax matters if you involved in construction industry. In this article, we will have a closer look on CIS tax matters for Contractors regarding what is CIS, how does it work and its compliance.  

What is Construction Industry Scheme (CIS) Tax?

The CIS tax system is designed by HMRC to collect the income tax from those people working in the construction industry. The tax is compiled throughout the year (monthly basis) like tax deducted under the PAYE scheme.

The constructor requires to register for the CIS and is liable to deduct the right amount of the CIS tax from their subcontractors. There are three rates of the CIS tax as follows:

  1. No tax deduction if the contractor has the “Gross Payment Status”
  2. Deduction at normal rate of 20% if the subcontractor is registered for CIS
  3. Deduction at higher rate of 30% if the subcontractor is non-CIS registered and you are unable to verify them  

The most construction activity is under the CIS tax regime including building works, demolition, alterations, the site preparation and more. However, some certain jobs (architecture, scaffolding, carpet fitting, delivery materials) are not subject to the CIS tax.

How Does the CIS Tax Work?

The construction company (contractor) deducts the CIS tax on behalf of their workers (subcontractors) and pays the tax amount to HMRC. The subcontractors will receive the net amount with any material costs from the contractor.

For example: ABC Construction Ltd hires Mr. Smith as their subcontractor and each month he is owed £2,000 as labour charge and the cost for any materials where applicable. On the labour charge, ABC pays the CIS tax £400 (20% of the £2,000) to HMRC and the net of £1,600 plus the materials costs to Smith. The company gives the CIS statement or payslip to Mr. Smith as a proof.            

Please note that an employee cannot be treated as a subcontractor: only self-employed individual or a company. They may be eligible for the CIS tax refund and should claim for their refund. 

The Compliance Matters for the CIS Tax?

You need to register for the CIS tax if you are a contractor and pay the subcontractors for their construction work. The contractor can be a sole trader or limited company and you need to apply to HMRC as a new employer. If you have already PAYE registration details, you need to call HMRC and request for the CIS tax registration.

As a contractor, you should deduct the correct CIS tax amount from the subcontractors and submit the return with the tax payment to HMRC on time. The deadline is 19th of every month following the last tax month. For example: the tax month of 6 April to 5 May should be submitted and paid by 19 May. You can pay by 22nd if paying online. You may be subject to penalty charges if the CIS tax return is not submitted on time and failure to pay within the deadline.     

After the deduction made and the return submitted, you should give the CIS statement or payslip to your subcontractors as proof and they need this for their tax returns.

Looking for CIS Tax Service?

At The Stan Lee, we pride to offer the CIS tax services from the registration to the CIS tax computation, return submission and other ad hoc CIS affairs at reasonable fees for your construction business. Please contact us and let’s find out how we can support on your CIS tax requirements.

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