Reverse Charge VAT (CIS)

Subcontractors under the CIS (Construction Industry Scheme) do not collect the VAT on the sales invoices they produce so the Contractor has to account for it instead. To do this, Reverse Charge VAT codes need to be used.

The following VAT codes for Reverse Charge VAT are already set up, but these codes may not be relevant to many users therefore they are non-active and the user can make them active if needed. 

When the reverse VAT code is used on a Purchase Invoice, the VAT on the item line with the reverse code is automatically reversed out on the next line when you tab off the end of the row. 

When the reverse VAT code is used on a Sales Invoice the VAT is automatically set to zero.

Entries CIS Sales Invoices – subcontractor sales invoice to contractor

When entering a sales invoice all Items on the invoice will need to use domestic reverse charge VAT, either code SDR or RDR depending on the rate of VAT involved. This means no VAT is charged by the subcontractor, rather, the contractor will have to account for both the Output and Input VAT on their posting of the purchase invoice.  If materials are supplied and used directly in any of the services provided, the reverse charge should be applied to those too. 

Sales invoice with Standard Reverse charge VAT example:

CIS Purchase Invoice – contractor entering the sales invoice from subcontractor onto the accounts as a purchase invoice

Item lines will be entered similar to the sales invoice except using the relevant labour, materials and CIS withheld (CIS liability) items.

A reverse charge VAT code SDR or RDR will be used which, when tabbing off the item line, will create a reversal of the VAT shown at the bottom of the entry screen. When CIS is applicable to a purchase invoice then all item lines should be charged with a reverse VAT code. 

Purchase invoice with Standard Reverse charge VAT example: