Sole Trader and Vat reverse Charge

[whiteleyl]

HI.

We are a sole trader business, majority of work is through a letting agency who act for landlords so they are not CIS registered. When we invoice them we dont use the VAT reverse charge, we charge the VAT and reclaim this VAT. I have a job at the moment where we have to do some work for the letting agency but we are also having to use a Subcontractor electrician to carry out some of the work, this electrician is VAT registered, when he invoices us for his work should his invoice show the VAT reverse charge on it or should he add the VAT on it? He invoices us for his work then we invoice the letting agency with the total works which will have the VAT on it and we will claim the VAT.

Advice much appreciated.

 

[DWS]

If the work the electrician is carrying out is within CIS and they are invoicing you and not the letting agency then DRC will be used for VAT.

 

[whiteleyl]

If the work the electrician is carrying out is within CIS and they are invoicing you and not the letting agency then DRC will be used for VAT.

Thank you for confirming that. I have been looking on the HMRC website and I cannot find a list of electrical jobs that fall within the CIS. I was looking for Installing extractor fan in bathroom, extra electrical points, cooker socket, repairs to faulty lights. Do you know where I can find a list of what falls within CIS because the HMRC site is very vague.

Thanks

 

[DWS]

It only takes one part of the work to be within CIS and then it becomes a ‘mixed supply’ meaning all the work will be liable to CIS deduction, hence why Contractors just play it safe and say all the work is CIS.

This link may help

Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340)

www.gov.uk

 

[whiteleyl]

It only takes one part of the work to be within CIS and then it becomes a ‘mixed supply’ meaning all the work will be liable to CIS deduction, hence why Contractors just play it safe and say all the work is CIS.

This link may help

Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340)

www.gov.uk

Thank you

 

[UK Contractor Accountant]

letting agency who act for landlords so they are not CIS registered.

hmmm - doesn't necessarily mean that they should not be CIS registered!

You are invoicing the Letting Agency not the landlord so might still come under CIS Regulations.

 

[whiteleyl]

hmmm - doesn't necessarily mean that they should not be CIS registered!

You are invoicing the Letting Agency not the landlord so might still come under CIS Regulations.

I checked with the letting agency when the VAT reverse charge came out and they wasnt CIS registered, I have never had to use the VAT reverse charge upto now because the electrician was not VAT registered but he has decided to not work self employed anymore and has got a job. We now have an electrician who is VAT registered so I now have the problem to decide whether it applies or not. I have been looking on HMRC again and I think if it involves just replacing sockets, or adding sockets to existing system then it does not apply and that is the same with light fittings. I am not sure where we stand regarding the Installing extractor fan in bathroom unless this is to just replace existing one (we have just received the request to quote for this job). I am thinking of contacting HMRC for clarification. I did think it was a good idea to say all work comes under CIS but then it says if it is wrong then you have to rectifiy it which could involved refunds/credit notes depending who has made the error.

 

[Paul Kelly ICHYB]

So, if I employ a CIS tradesperson (as an individual or general business), do I have to manage CIS?

Surely if the electrician is for occasional use, they just send a VAT invoice?

I am going to learn something on this post!!!!

 

[whiteleyl]

If the work the electrician is carrying out is within CIS and they are invoicing you and not the letting agency then DRC will be used for VAT.

Yes I understand that I am just trying to identifying if the work does actually fall within the CIS which is the Installing extractor fan in bathroom it is like a minefield unfortunately.

 

[Paul Kelly ICHYB]

You are employing the services of an electrician to do a specific job - why isn't it a standard supply with a simple invoice?

Why is CIS even being discussed?

 

[UK Contractor Accountant]

Why is CIS even being discussed?

The letting agency is engaging direct (as principal) with builders, electricians, plasters, roofers, plumbers etc. which effectively brings the Agency within the realms of the CIS Scheme and having to register as a Contractor.

I assume they engage direct so they can stripe up the landlords by adding on their overinflated margin on top when re-invoicing back out to Landlords. Am i being cynical here?

After all its the Landlords cost not the Agency's so repair costs should be just invoiced direct to the landlord - the Agency is just arranging the repairs for which it is being paid for via its management charge each month.

 

[UK Contractor Accountant]

so I now have the problem to decide whether it applies or not. I have been looking on HMRC again and I think if it involves just replacing sockets, or adding sockets to existing system then it does not apply and that is the same with light fittings. I am not sure where we stand regarding the Installing extractor fan in bathroom unless this is to just replace existing one (we have just received the request to quote for this job). I am thinking of contacting HMRC for clarification.

Well this is HMRC's view as shown in their own internal manuals - CISR14020

Construction Operations
The expression ‘construction operations’ covers almost anything that is done in the United Kingdom and its territorial waters to a building, structure, civil engineering work or installation, whether of a permanent or temporary nature. This includes:

• construction
• alteration
• repair
• extension
• demolition
• dismantling.

Anything done on a construction site in connection with construction work is therefore likely to be a construction operation unless it falls in one of the following classes:

• It is clearly not, by its nature, a construction operation. This applies to activities such as the running of canteen, hostel, medical, safety, security or temporary office facilities.
• It is specifically excluded from the Scheme by FA04/S74 (3) (the excluded operations are dealt with in detail later in this section).

 

[UK Contractor Accountant]

am not sure where we stand regarding the Installing extractor fan in bathroom unless this is to just replace existing one (we have just received the request to quote for this job).

Included Operations
Installation of systems of
heating, lighting,
airconditioning, ventilation,
power supply and distribution,
drainage, sanitation, water
supply and distribution, and
fire protection works.

 

[whiteleyl]

Included Operations
Installation of systems of
heating, lighting,
airconditioning, ventilation,
power supply and distribution,
drainage, sanitation, water
supply and distribution, and
fire protection works.

Yes I have seen that but I think that is to do with new systems being installed e.g if a property doesnt have any electrics. I have found out that installing new electrical sockets does fall in the CIS scheme but if you are repairing one or extending an electrical socket then it does not fall within the CIS scheme. I am presuming the installation of an electric fan in a bathroom will be a new installation therefore it will fall within CIS and then in our situation where we are asking a subcontractor electrician for a quote in this instance it will need the vat reverse charge on his invoice but not on our invoice to the letting agency.

 

[whiteleyl]

You are employing the services of an electrician to do a specific job - why isn't it a standard supply with a simple invoice?

Why is CIS even being discussed?

Because according to othe VAT reverse ruling you only need to apply this if the work carried out is actually within the CIS. Not all the electrical work falls within the CIS e.g repairing sockets and extending existing sockets but installing new sockets does fall within it. It would be better if none fall within CIS then we wouldn't have to bother with the VAT reverse charge and could carry on as normal.

 

[Paul Kelly ICHYB]

Anything done on a construction site in connection with construction work is therefore likely to be a construction operation

So a repair, replacement, redecoration does not fall under CIS.

If all of this does, I am confident that most relevant users of decorators, plumbers, electricians etc are breaking the law. It infers that, as a business owner, if I get someone to mend a dripping tap, I have to use CIS!

I don't think so!

 

[DWS]

CIS is for Contractors and Sub-contractors working within the construction industry, if you as a business or homeowner engage a builder to work on your own premises then CIS does not apply.

 

[Paul Kelly ICHYB]

CIS is for Contractors and Sub-contractors working within the construction industry, if you as a business or homeowner engage a builder to work on your own premises then CIS does not apply.

So, CIS is irrelevant to the OP?

 

[DWS]

So, CIS is irrelevant to the OP?

No CIS is very relevant!
They are Contractors carrying out work on peoples properties and engaging sub-contractors to do some of the work, so if the work is within CIS which it sounds like it is then they have to apply CIS and also the VAT reverse charge

 

[Paul Kelly ICHYB]

OK.

 

[Bobbo]

The letting agency is engaging direct (as principal) with builders, electricians, plasters, roofers, plumbers etc. which effectively brings the Agency within the realms of the CIS Scheme and having to register as a Contractor.

I assume they engage direct so they can stripe up the landlords by adding on their overinflated margin on top when re-invoicing back out to Landlords. Am i being cynical here?

After all its the Landlords cost not the Agency's so repair costs should be just invoiced direct to the landlord - the Agency is just arranging the repairs for which it is being paid for via its management charge each month.

I assume that OP invoicing the letting agent is just a simplification and that the letting agent is processing the invoice as if it was invoiced directly to the landlord (i.e. they are not treating it as they were engaging as principal and re-invoicing to the landlord).

 

[whiteleyl]

I assume that OP invoicing the letting agent is just a simplification and that the letting agent is processing the invoice as if it was invoiced directly to the landlord (i.e. they are not treating it as they were engaging as principal and re-invoicing to the landlord).

Yes that is correct but I don't know whether they invoice the landlord not sure how they sort their part out. The letting agency are not CIS registered so we can invoice as standard.

 

[UK Contractor Accountant]

I assume that OP invoicing the letting agent is just a simplification

it may be a simplification but in the eyes of HMRC they might be seen to come within the CIS Regulations. Whats to stop them getting the repairs etc being invoiced to the Landlord and paid via their clients designated bank account?

 

[whiteleyl]

it may be a simplification but in the eyes of HMRC they might be seen to come within the CIS Regulations. Whats to stop them getting the repairs etc being invoiced to the Landlord and paid via their clients designated bank account?

Not sure but our invoice is addressed to the letting agency with property details on. I have an email from them saying they are not registered for CIS so I have my evidence.

 

[UK Contractor Accountant]

CISR15170 - The Scheme: payments: managing agents - HMRC internal manual - GOV.UK

www.gov.uk

 

[Paul Kelly ICHYB]

CISR15170 - The Scheme: payments: managing agents - HMRC internal manual - GOV.UK

www.gov.uk

Can you translate that to English, please?

 

[UK Contractor Accountant]

As I stated in post 11 above

HMRC's view as stated in CISR15170

Where the contract between the principal (landlord) and the managing agent (Letting Agency) includes the maintenance of the property and the agent enters into a contract on their own behalf, even though this is done under the terms of the service contract between the agent and the principal, the agent will be acting as a contractor within the Scheme.

 

[whiteleyl]

See replies in bold and underlined

When a managing agent is acting for a principal or ‘client’ in letting contracts that include construction operations they will not generally be a contractor as defined within the Scheme. This is because the contract for construction operations will more likely be between the principal and the subcontractor. The managing agent’s role would be to see that the work is carried out in accordance with the principal’s contract with the subcontractor and may include making payments to them.

I think this reads as The principal or "client" is the Landlord not the letting agency. It also says The managing agents role would be to see that work is carried out with the principals (landlord) and may include making payments to them (I think this means payments to the letting agency)

Where the contract between the principal and the managing agent includes the maintenance of the property and the agent enters into a contract on their own behalf, even though this is done under the terms of the service contract between the agent and the principal, the agent will be acting as a contractor within the Scheme.

This is a bit difficult in our circumstances I think the tenant reports the issues to the principal (landlord) or the agency (letting agency) I dont think the agency ever enter into a contract on their own behalf.

Remember that payments made under a contract between the managing agent and the subcontractor may be caught by the Scheme where it is a mixed contract, for example,including elements of security, cleaning, minor repairs and maintenance. When considering such a case you should refer to the section dedicated to ‘construction operations’ at CISR14000 onwards for more on mixed contracts and operations caught by the scheme. Brief details on the scope of construction operations is also covered in Appendices A & B of CIS340 - ‘Construction Industry Scheme. Guide for contractors and subcontractors’, available on .

Payments between managing agent and subcontractor may be caught by the scheme (this can only apply if the letting agent are CIS registered if they are not then none of this applies). The mixed contract is where there has been several repairs done on one contract (invoice e.g installing bathroom suite/kitchen etc) if it is a single job then it is not a mixed contract) as far as I am aware.

It is all very confusing The letting agency we use are a very big letting agency not a small business so their accountants may no all the loopholes.

 

[DWS]

None of the letting agents my clients work for are CIS registered, they are carrying out the work for the landlord who agrees to have the work done, the builders invoice the letting agent but for the property they worked on and this money is then taken off the landlords rent and paid to the Contractor, the letting agent charges the contractor a % of the price as a handling fee.
So it seems in the case here, no CIS and VAT charged at the appropriate rate.
At the end of the day it is down to the letting agent to tell the OP if they are CIS registered and if they are not but should have been that is their problem not the OP's.

 

[whiteleyl]

None of the letting agents my clients work for are CIS registered, they are carrying out the work for the landlord who agrees to have the work done, the builders invoice the letting agent but for the property they worked on and this money is then taken off the landlords rent and paid to the Contractor, the letting agent charges the contractor a % of the price as a handling fee.
So it seems in the case here, no CIS and VAT charged at the appropriate rate.
At the end of the day it is down to the letting agent to tell the OP if they are CIS registered and if they are not but should have been that is their problem not the OP's.

That sounds exactly like our situation. Our letting agent charges up a percentage of the invoice but that is for giving us the work to do. Going back to my original question it was the agency has asked us to do some work which we will invoice them for but we are getting an electrician to install a fan in the bathroom and the electrician will invoice us for the fan and we pay the electrician this is what I think is the DRC because it is a new installation as I think it falls within the scope of the CIS scheme and the first question on the flow chart is:- does the work fall within the scope of CIS. My understanding is if there are repairs/replacements of electrical sockets then this does not fall within the scope of CIS but if a completely new socket is installed then that does fall within the scope. I maybe wrong. I have been on the chat with the HMRC VAT and they were unsure and have told me to contact the CIS to confirm but of course they do not reply to the telephone call and cannot be contacted via the chat facility. I will be trying to find out again over next week.

 

[DWS]

My opinion is that the work is within CIS, it only takes a bit of making good to the property and the whole work is within CIS.
This is why most Contractors basically CIS everything, if they engage subbies then it is within CIS, saves all this messing around on every job trying to analyse if it is CIS or not.