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Do I charge VAT to a main contractor or not?

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Not if all six reverse-charge conditions hold: the work is a construction operation within the CIS definition, it is standard-rated or reduced-rated, both of you are VAT registered, the customer is registered for CIS, the payment is reported within CIS, and the customer is neither an end user nor an intermediary supplier who has notified you in writing. In that case you invoice with no VAT and state that the customer must account for it. The important part is the default: if your customer has not notified you in writing that it is an end user or intermediary supplier, you must apply the reverse charge rather than assume normal VAT.

The default is the reverse charge

Where the supply is a construction operation, both parties are VAT registered, both are registered under CIS, the supply is standard or reduced rated, and the customer is not an end user or intermediary supplier, the reverse charge applies. You do not add VAT. You state on the invoice that the customer accounts for it.

The important part is which way round the default runs. Absent an end-user notification, the reverse charge is what applies. It applies unless your customer has told you in writing that they are an end user.

So when do you charge VAT?

  • Your customer is an end user and has told you so in writing.
  • Your customer is an intermediary supplier and has told you so.
  • The customer is not VAT registered, or not CIS registered.
  • The supply is zero-rated — a new dwelling, for instance.
  • The work is not a construction operation.
  • It is a supply of staff rather than of construction services.

Gross payment status makes no difference

This is the single most common misunderstanding of the two regimes. The reverse charge uses the CIS definition of construction operations to set its scope, but it is not part of CIS. It applies where a payment has to be reported under the CIS regulations, regardless of whether a deduction is actually made. A subcontractor with gross payment status is still inside the reverse charge on the same work.

If you are unsure on a particular invoice, the reverse charge checker works through the conditions in order.

This question is part of The VAT domestic reverse charge, which covers the whole area.

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