How to check VAT and CIS in construction payments

Step-by-step guide

1. 1. Establish the payment and parties

   Identify the supplier, customer, work covered, payment period and agreed valuation basis. Reconcile retention, previous assessments and other contractual adjustments before considering tax.

   Keep the application, assessment, invoice and payment ledger linked by reference. They perform different jobs, even when one document contains several of them.

   Check the relevant business registrations and who is responsible for the tax decision. Do not infer VAT or CIS status from a company name.

   Our interim valuation guide explains the commercial calculation. The payment and notices explanation covers the separate procedural checks.

2. 2. Check VAT treatment

   Use HMRC guidance for buyers of construction services to check whether the domestic reverse charge applies. Check both VAT registrations, the service supplied, CIS reporting and the applicable VAT rate.

   The reverse charge generally concerns qualifying standard-rated or reduced-rated construction services. Zero-rated supplies and supplies of staff require different treatment.

   Check any end-user or intermediary-supplier exclusion. Keep the required written notification with the relevant supply records. Being a property owner alone is not sufficient evidence.

   Under the reverse charge, the customer accounts for the VAT instead of paying that VAT to the supplier. It does not make the supply zero-rated.

   The HMRC technical guide explains exclusions, mixed supplies and invoice requirements. Check the actual supply rather than assuming every payment on one project has identical treatment.

3. 3. Calculate CIS

   Follow the rate HMRC supplies through verification. The standard deduction rates are 20% or 30%; gross payment status means no CIS deduction.

   HMRC guidance on CIS deductions identifies the amounts excluded from the deduction base. These include VAT and eligible materials paid for directly by the subcontractor.

   Check the evidence of actual allowable costs. An invoice description or materials selling price does not by itself establish the deductible materials cost.

   Calculate CIS on the remaining amount using the verified rate. A gross payment status subcontractor can still make supplies subject to the VAT reverse charge.

   Keep CIS distinct from retention, a disputed valuation or a contra-charge. The deduction is paid to HMRC on the subcontractor's behalf, not retained as a commercial saving.

4. 4. Reconcile and retain the evidence

   Prepare a payment bridge showing assessed value, contractual adjustments, VAT treatment, CIS base, CIS deduction and cash payable. Identify every amount by its purpose.

   Check that the invoice contains the required VAT information, including reverse-charge wording where applicable. Ask the accounts team to confirm the posting.

   Retain the assessment, invoice, verification result, materials evidence, payment reference and any end-user notification. Record who checked exceptions and when.

   Where CIS deductions are made, HMRC requires a payment and deduction statement within 14 days of the tax month's end.

   Use actual expected receipts in your cash-flow forecast. Do not forecast reverse-charge VAT as money received from the customer.

   Payment assessment support can help reconcile the commercial records. Tax treatment and returns remain matters to confirm with the responsible accounts adviser.

Before you finish: Check that assessed value, VAT, CIS and cash reconcile. Resolve uncertain treatment with the accounts adviser before approval.

Worked example