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Accountants for construction and trades
CIS subcontractors and contractors, and the VAT reverse charge that catches everyone.
If you are a subcontractor, you are probably owed money
Under the Construction Industry Scheme the contractor deducts 20% from your labour before paying you - or 30% if you are not registered or could not be verified. That is tax paid in advance, on your turnover, before a single expense has been counted.
Once we put your van, tools, fuel, insurance, protective clothing and travel through the return, the tax actually due is almost always less than what was deducted. For most subcontractors the tax return produces a refund, not a bill. If you have been putting off filing because you assumed you owed something, you may have it backwards.
One detail worth knowing: CIS is deducted from the labour element only. If your invoice covers materials you paid for, they should be shown separately and no deduction taken on them. Contractors get this wrong regularly, and it costs you cash flow all year.
If you are a contractor, the deadlines are monthly
- Verify every subcontractor with HMRC before the first payment, or you must deduct at 30%.
- File the CIS return by the 19th of each month, even in a month where you paid nobody - a nil return is still a return.
- The late filing penalty starts at £100 and escalates fast. Monthly returns mean the penalties stack in a way annual ones never do.
- Issue payment and deduction statements to your subcontractors.
The domestic reverse charge
Since March 2021, VAT on most construction services between VAT-registered businesses in the CIS chain is not charged by the supplier. Instead the customer accounts for it. You invoice without VAT and state on the invoice that the reverse charge applies.
Two things follow, and both catch people out. First, if you are a subcontractor who used to collect VAT and pay it over quarterly, that cash is no longer passing through your account, and a business that was quietly relying on it for working capital will feel the change. Second, if you are now in a repayment position every quarter, you can move to monthly VAT returns and get the money back four times faster. Most people never ask.
The reverse charge does not apply where your customer is an end user - a private householder, or a business that is not itself passing the work on. Getting that call wrong in either direction is one of the most common VAT errors in the trade.
For a subcontractor working mainly through CIS, a limited company changes how the deductions are recovered - they are set against the company’s PAYE liabilities rather than refunded to you personally, which can leave the money sitting with HMRC for months. It is worth deciding this deliberately rather than incorporating because someone on site said you should.
Common questions
Construction and trades - the questions we get asked
Will I get a CIS refund?
Usually, yes. Tax was deducted from your labour at 20% of turnover before any expenses were taken into account, so once the van, tools, fuel and materials go through the return the tax actually due is normally lower. How much depends on your costs.
How long does a CIS refund take?
HMRC typically pays within a few weeks of the return being filed, though it can take longer if they run a check. Filing early in the tax year rather than in January usually means the money arrives sooner.
Do I still charge VAT to the contractor I work for?
Generally not, if you are both VAT registered and the work falls under CIS - the domestic reverse charge applies and the contractor accounts for the VAT. You invoice without VAT and say so on the invoice. It is different if your customer is an end user.
I have not filed a CIS return for months. What happens?
Penalties will have built up, including for nil months. They can often be reduced, and the position is far better if you come forward than if HMRC comes to you. Ring us and we will work out where you stand.