New-build house at 0% VAT: does CIS still come off? One invoice worked through

Yes, CIS still comes off. VAT and the Construction Industry Scheme are two separate sets of rules, and a 0% VAT rate does nothing to the CIS deduction. On a new-build house a VAT-registered subcontractor normally charges 0% VAT, uses no reverse charge, and still has 20% taken from the labour. Here is the invoice, line by line.

Why the VAT is 0%

HMRC's VAT Notice 708 lists the construction of new qualifying dwellings at a VAT rate of 0%. Paragraph 2.1.3 covers subcontractors: "For the most part they can zero rate or reduce rate their supplies according to the building being constructed or worked on".

So if a builder is putting up a new house and you do the electrics for that builder, your work is zero-rated in the same way as the builder's. For a building designed as a dwelling you do not need a certificate from anyone.

Four checks before you rely on it:

1. It is a new dwelling. An extension is not, and nor is a "granny" annexe that cannot be used or sold separately from the main house. A house that keeps part of an earlier building on the site does not count either.
2. The work is done before the building is complete. A separate job after completion is work on an existing building. Snagging under your original contract stays zero-rated.
3. It is not a certificated building. On communal residential buildings and buildings used by charities, Notice 708 says a subcontractor "must always standard rate" the supply.
4. The service is not one that is excluded. Goods hired on their own, such as plant or scaffolding, are standard-rated. So are the services of architects, surveyors, consultants and supervisors.

Why there is no reverse charge

GOV.UK's guide to the domestic reverse charge says the charge "applies to standard and reduced rate VAT services" between VAT-registered businesses, where the payment is reported under CIS. A zero-rated supply is neither standard nor reduced rate, so there is nothing to reverse. Leave the reverse charge wording off the invoice and show VAT at 0%.

If one of the four checks fails and your work is standard-rated, the reverse charge comes back. HMRC's technical guide says: "If you supply standard-rated services for new build housing, the reverse charge will apply", unless the customer is an end user and tells you so in writing.

Why CIS still applies

GOV.UK's CIS guide for contractors says the scheme covers "most construction work to buildings". The deduction rates are 20% for registered subcontractors, 30% for unregistered ones and 0% for those with gross payment status. Nothing in those rules turns on the VAT rate.

To work out the deduction, the contractor starts with the invoice total and takes away VAT and the materials you paid for directly. The percentage comes off what is left.

The worked invoice

An electrician does first and second fix on a new-build house for a builder. Both are VAT registered. The figures are invented.

The builder pays £800 to HMRC, and it counts as an advance payment towards the electrician's tax and National Insurance bill.

Here is the same job at each CIS status:

If the same work were on an extension for a VAT-registered builder, it would be standard-rated under the reverse charge. The invoice would show VAT of £1,100 (20% of £5,500) for the builder to account for. The electrician would still receive £4,700. The cash is the same, and the paperwork is different.

Lines that stay at 20% on a new build

Materials follow the rate of your work only if they are building materials that are ordinarily incorporated in a dwelling. Notice 708 gives lists for both sides.

There is a twist that helps you. Paragraph 11.2 says that on a zero-rated project "you can still zero rate the service of incorporating standard-rated goods". So if you supply and fit a CCTV kit on the same house, the kit is at 20% and the fitting is at 0%.

A CCTV kit priced at £700 with £200 of fitting goes on the invoice as £700 plus £140 VAT, and £200 at 0%. HMRC's reverse charge guide says the reverse charge does not apply to goods like these in new-build housing, so you charge the £140 to the builder in the normal way.

If you invoice the homeowner direct

A person building their own house can be your customer with no builder in between. Your work is still zero-rated if the four checks are met. CIS is different. GOV.UK defines contractors as construction businesses that pay subcontractors, plus organisations that have spent more than £3 million on construction in 12 months. A private householder is neither, so no deduction is made.

Getting it onto paper

Split labour from materials on every CIS invoice. If you do not, the contractor has no figure for materials and may take the deduction from the whole amount. Our invoice maker for trades splits the two and prints the reverse charge wording where it applies, and the CIS deduction calculator shows the VAT treatment and the deduction together. Both have a zero-rated setting: choose 0% and the VAT line reads nil while the deduction still comes off the labour. The contractor reports what it deducted on its monthly CIS return.

This is general information, not tax advice. Zero-rating depends on the building and the contract, so check a job you are unsure of with HMRC or your accountant before you invoice.