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Cis invoice example for Personnel

hello everybody and welcome back to my YouTube channel if you are new here then welcome my name is Rachel and I am a disrupter in the accounting industry I'm disrupting what it means to be an accountant what it feels like to have an accountant and showing you the behind the scenes of what running an accountancy practice looks like in today's video I'm talking all about the construction industry scheme also known as CIS and I'm going to run you through what the vat reverse charge is in the construction sector so vat reverse charge rules came into effect on the 1st of March 2021 altering the way that businesses operating in the construction industry scheme otherwise known as CIS and who are Vat registered present their invoices the new rules are complex and you'll need to be aware of what they may mean for your business's sales invoices and vat returns so what is the vat reverse charge the reverse charge is a way of accounting for vat where the End customer accounts for the vat and the supplier of the construction services doesn't the reverse charge means the End customer receiving Construction Services has to pay the vat to hmrc instead of the supplier the End customer recovers vat subject to the normal Rules by hmrc next up I'm going to cover how are the new rules applied the new rules apply to standard rated vat or reduced rate Construction Services provided by a vat registered business the reverse charge doesn't apply to supplies of services which are zero rated such as the construction of housing if you don't make an onward supply of Construction Services you won't have an End customer and normal vat rules apply as an example a Housing Association that has contracted a building company to construct some apartments won't be making any onward supply of construction services and so normal vat rules will apply between the building company and the Housing Association if invoices have both CIS and non-cis registered supplies then the reverse charge applies to the whole invoice amount the typical situation where the reverse charge applies is where a subcontractor makes a supply of services to a customer or contractor who then makes an onward supply of the same Construction Services to an end customer I'm going to show you what a typical supply chain is shortly so all parties in the chain are Vat registered and when the End customer confirms that they are the end of the supply chain normal vat rules then apply so how will this affect you that depends on your position in the supply chain that I just explained you can use this flowchart to work out if you should apply the reverse charge or whether normal v80 rules apply so what do you have to do if you are a subcontractor if you're invoicing a customer or a contractor in a supply chain you'll either have to charge vat as normal or apply the reverse charge for the reverse charge your invoice total will not include vat however your invoice must include a statement advising your customer or your contractor that the reverse charge rules apply stating the amount of output vat to be applied so 20 if it's a standard rate of v80 then your customer or contractor will need to include that amount on their vat return and you don't include anything on your vat return about the reverse charge so what does this look like if you are a main contractor if you're a main contractor receiving a vat reverse charge invoice from a subcontractor you should continue to record it as a normal expense invoice and include the input VAT on your vat return you'll also then need to account for the reverse charge vat that the subcontractor has notified you about the overall effect on your vat liability is neutral as the output fat is recovered by the input fat so it may be possible to be a subcontractor on one project and be a main contractor on another and so you need to consider the vat status of your services for each construction project that you work on if you're currently on the flat rate vat scheme and the majority of your supplies are affected by the vat reverse charge you might want to consider changing to the standard vat scheme because the flat rate income amount will be reduced possibly to nil and you'll be losing the opportunity to reclaim input VAT on your expenses this is a big topic it is very new and so depending on where you're at in the supply chain it can feel quite confusing and so the best bit of advice I can give you at this point in the video is to speak to an accountant if you are not sure please do let me know in the comments if you found this video helpful thank you so much for your time today and I hope to see you again very soon