Construction Reverse Charge and CIS Gross Payment Status

VAT Question

My clients is a subcontractor in the building industry and has Gross Payment Status for CIS. He has just entered into a contract to provide building services to a VAT and CIS registered main contractor in regard to the building of a new commercial building. Both my client and the main contractor are advising that the new Domestic Reverse Charge introduced in the construction industry from 1/3/2021 does not apply to my clients supplies due to their gross payment status. Is this correct?

VAT Answer

Oddly, the guidance HMRC issued on 24 September 2020 ahead of the introduction of this reverse charge make no actual mention of gross payment status for CIS and how this would affect the application of the reverse charge.

However, you only need to refer to section 25 and the flowcharts provided in that guidance here to find the obvious answer.

This guidance and the Flowcharts provide the specific circumstances required to be present in order for the reverse charge to apply.

These refer to the supply being “reported within” CIS or, in the case of the flowcharts, asks whether the supply falls “within the scope of CIS”.

Even where a supply is made by or to a business that has CIS gross payment status the supplies are still within the scope of CIS and the reporting requirements and therefore your clients supply will fall to be treated under the reverse charge.