What Every Plumbing & Heating Engineer Needs to Know
(From Hammond & Co’s point of view)
1. Introduction – Getting It Right Matters
At Hammond & Co, we work with plumbing and heating engineers every day, and two areas of tax compliance cause more confusion than almost anything else:
- CIS (the Construction Industry Scheme)
- Domestic Reverse Charge VAT
Both are essential parts of working in the construction sector, yet they’re also some of the most misunderstood rules we see in practice. We regularly meet good tradespeople who have overpaid tax, damaged cash flow, or faced HMRC penalties simply because the rules weren’t explained properly.
The good news is that once these schemes are understood—and set up correctly—they’re nothing to fear.
Here’s how CIS and the Domestic Reverse Charge apply to your plumbing or heating business, and how Hammond & Co ensures you stay compliant and confident all year round.
2. Understanding CIS – The Construction Industry Scheme
The Construction Industry Scheme (CIS) was introduced by HMRC to ensure tax is deducted correctly from payments made to subcontractors carrying out construction work. This includes plumbing, heating, electrical, roofing, and general building services.
Who CIS applies to
CIS applies if you:
- Work as a subcontractor providing labour to another contractor, or
- Hire subcontractors to help you complete jobs
CIS registration
Both contractors and subcontractors must register with HMRC:
- Contractors must verify subcontractors before making payment
- Registered subcontractors are taxed at 20%; unregistered subcontractors at 30%
Registration can be done online or through your accountant. At Hammond & Co, we handle this process for clients to ensure everything is set up correctly from day one.
3. How CIS Works in Practice
If you’re a heating engineer working for a main contractor and you invoice £2,000 for labour, the contractor must deduct 20% (£400) under CIS and pay that amount directly to HMRC. You receive £1,600 along with a CIS deduction statement.
Those deductions are treated as advance payments toward your income tax and National Insurance. If too much tax has been deducted, we’ll reclaim the refund from HMRC on your behalf.
If you hire subcontractors yourself, you must:
- Register as a CIS contractor
- Verify each subcontractor
- Submit monthly CIS returns by the 19th of the following month
Late submissions can result in penalties starting at £100. At Hammond & Co, we submit all CIS returns on time through our HMRC-approved systems to keep clients penalty-free.
4. Common CIS Mistakes We See (and Fix)
When new clients come to us, we often uncover issues such as:
- Incorrect deduction rates
- Subcontractors not properly registered
- Late or missed CIS returns
- Duplicate or unreconciled deductions
- Materials incorrectly included in CIS calculations
HMRC rules state that CIS applies only to the labour element of a payment—not materials, fuel, or plant hire. We make sure these are split correctly so clients don’t overpay tax or trigger HMRC enquiries.
5. What the Domestic Reverse Charge VAT Scheme Means
The Domestic Reverse Charge (DRC) for VAT came into force in March 2021 and remains fully applicable in 2025/26. It changed how VAT is handled on many construction services, including plumbing and heating work.
Why it exists
HMRC introduced the reverse charge to reduce VAT fraud by stopping subcontractors from collecting VAT and failing to pass it on.
When it applies
The reverse charge applies when:
- Both parties are VAT-registered
- The work falls within CIS
- The customer is not the end user
In these cases, you do not charge VAT. Instead, the customer accounts for it on their own VAT return.
6. How the Reverse Charge Works in Practice
If you invoice a contractor £5,000 for plumbing work:
- Previously, you would charge £5,000 + £1,000 VAT
- Under the reverse charge, you invoice £5,000 only
Your invoice must clearly state that the VAT reverse charge applies and that the customer is responsible for accounting for VAT.
No VAT changes hands, but the transaction is still recorded correctly in your accounts.
7. When the Reverse Charge Does Not Apply
You charge VAT as normal when:
- Working for a homeowner or private customer
- The work is zero-rated (such as qualifying new builds)
- The customer is not VAT-registered
- You supply materials only
We always advise clients to confirm VAT status before invoicing—one simple check avoids costly mistakes later.
8. The Link Between CIS and Reverse Charge VAT
Many plumbing and heating engineers fall under both schemes at the same time.
If you’re VAT-registered and working for another contractor under CIS:
- CIS applies to labour deductions
- Reverse charge applies to VAT on the invoice
This overlap is where errors commonly occur. At Hammond & Co, we set up invoice templates and accounting rules so the correct treatment happens automatically.
9. What HMRC Expects from You
HMRC requires businesses affected by the reverse charge to:
- Check VAT and CIS registration status
- Clearly state reverse charge wording on invoices
- Keep records explaining why reverse charge was applied
- Report transactions accurately on VAT returns
Failure to comply can lead to assessments and penalties. We ensure everything is recorded correctly using integrated systems such as Xero, Dext, and BrightPay.
10. How Hammond & Co Keeps You Compliant
For plumbing and heating clients, we handle:
- CIS registration and subcontractor verification
- Monthly CIS submissions
- Reverse charge invoice guidance
- Accounting software setup and configuration
- Regular VAT and CIS reviews
- Direct handling of HMRC correspondence
Our processes align with HMRC guidance current to 2025, giving clients peace of mind.
11. Common Questions We’re Asked
Do materials fall under CIS or reverse charge?
Materials are excluded from CIS deductions and usually excluded from reverse charge unless supplied as part of labour-inclusive work.
Do I apply reverse charge for domestic customers?
No. Homeowners and end users are charged VAT as normal.
Can I still reclaim VAT on costs?
Yes. Input VAT is still reclaimable even when reverse charge applies.
What if I get it wrong?
Mistakes can lead to HMRC action, but early correction usually prevents penalties. That’s why we review returns before submission.
12. The Hammond & Co Difference
At Hammond & Co, we don’t just file forms—we help clients understand what’s happening and why.
We use trade-specific systems, up-to-date HMRC guidance, and proactive reviews to ensure plumbing and heating businesses stay compliant, protected, and confident.
When you speak to us, you speak to someone who understands the difference between labour-only subcontracting and a full boiler installation—and that makes all the difference.
13. Final Thoughts – Stay Compliant, Stay in Control
CIS and Domestic Reverse Charge VAT aren’t optional—they’re legal requirements. But with the right advice and systems, they become manageable parts of running a successful trade business.
Our job is to let you focus on keeping homes warm and water flowing—while we keep HMRC satisfied.
14. Let’s Get Your CIS & VAT Right
If you’re unsure whether your CIS or VAT processes are correct—or you’ve never had them reviewed—now is the time.
📞 Call: 01246 563414
📧 Email: admin@hammondbusiness.co.uk
🌐 Visit:https://www.hammondbusiness.co.uk
We’ll review your setup, bring everything in line with HMRC rules, and make sure your business stays compliant, protected, and confident—with Hammond & Co by your side.