CIS Reverse Charge

Firstly what is a reverse charge?

The reverse charge is described by HMRC as an Anti-fraud measure. It is a mechanism that shifts the liability for accounting for the output VAT from the supplier onto the customer.

For chains with multiple contractors, this will transfer the liability to the final contractor in the chain who will be required to make the VAT payment to HMRC.

Anti-fraud measure:

This measure was introduced to avoid Missing trader fraud.

Missing trader fraud occurs where fraudulent companies/sub-contractors invoice contractors as normal at cost plus 20% VAT. The contractor will reclaim the 20% VAT as normal via their VAT return whilst the fraudulent party will disappear without filing & paying their VAT bill taking this undeclared VAT monies with them as additional profit – essentially stealing the money from HMRC.


Introduction of the domestic reverse charge!

As mentioned the VAT liability is moved from the supplier of service (the subcontractor) to the customer (the contractor).

The reverse charge is applied through the supply chain until the point where the customer is no longer a business or is determined to be the end-user.

What is affected?

The domestic reverse charge will only affect supplies at the standard or reduced rates where payments are required to be reported through the CIS.

Business who supply services in the Construction industry Scheme and who are also VAT registered will need to account for the VAT via the reverse charge.


  • End-user

For the purposes of the reverse charge, the final customers are referred to as the end-user. These end-users do not make onward supplies of construction services, however, they are likely registered for CIS and are deemed as contractors as they carry out construction operations & services.

  • Intermediary Supplier

Intermediary suppliers are businesses that are both registered for CIS & VAT that are connected to end users, ie. They exist in the same chain of contractors.

What does this mean?

If they are the end-user then VAT will be charged in the normal way. You will charge VAT on your sales invoice and pay this across to HMRC.

If however, they are an intermediary, VAT on your sales invoice will be charged using the reverse charge where no subsequent VAT payment will fall due to HMRC.

It is your responsibility to inquire with your contractor if they are the end-user or another intermediary.

What if you invoice for materials as well?

The domestic reverse charge applies to construction services covered under CIS and includes any goods that are supplied in conjunction.

Therefore if your sales invoices contain both a labour & material element, the whole invoice is still subject to the domestic reverse charge for VAT.


It is vital that any invoices that are issued clearly indicate whether the supplies are subject to the new domestic reverse charge so that it is clear to your customer that they are not required to account for the VAT.

Your invoice should display all other information as normal.

What is excluded from the Reverse charge?

For a comprehensive list of services that are excluded please visit the HMRC webpage below:

Accounting packages:

A business that uses the CIS scheme will need to ensure that their accounting systems are capable of processing the reverse charge on supplies.

When will this new rule apply?

Initially, the introduction of the scheme was scheduled for October 2019 but was delayed for a year as HMRC did not believe that businesses were prepared to implement the required change.

Now following delays caused by the coronavirus pandemic, the new rules surrounding the CIS reverse charge will come into play on the 1st March 2021.

If you feel you still need some clarity on the new CIS reverse Charge please get in contact with us!

Matthew Lay PJCO Peter Jarman
Matthew Lay

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