Installing a system is inside the Construction Industry Scheme. Repairing or replacing a component within a system that is already there is outside it.
Installation of systems of heating, ventilation, air conditioning and power supply is a named construction operation, so a new system going into a building is in the scheme.
HMRC is clear about the other side of it. Repairing or replacing part of an existing system is not installation of a system, so that work sits outside. An engineer swapping a failed compressor on a unit that has been on a roof for nine years is doing something the scheme does not reach.
An HVAC firm crosses that line most weeks, sometimes twice in a day for one customer, and the invoicing almost never reflects it.
Where the line falls across your work
Inside CIS
- A new system installed into a building, new build or existing
- Ductwork, plant, pipework and controls installed as part of that system
- Replacing a system rather than a part of one
- Mechanical packages taken on for a main contractor
- Builders work, plinths, penetrations and supports that go with the install
Outside CIS
- A callout to a unit that has stopped working
- Replacing a compressor, fan, control board or expansion valve inside an existing system
- Routine servicing and filter changes
- Fault finding and diagnostics
The awkward jobs sit between the two. A customer with a fifteen year old system asks you to change four indoor units and leave the outdoor plant. Part replacement, or a new installation? Decide that before the invoice leaves your office, because a contractor reading one line that says “mechanical works” will apply 20% to all of it, and you will spend a year getting it back.
Maintenance contracts behave nothing like install work
If you hold a decent service book, you are running two businesses through one bank account.
Servicing a system that is already installed is not installation, so maintenance income generally sits outside the scheme. It behaves differently in every other way as well. Billed on a schedule, predictable month to month, and carrying a margin that has little to do with what you make on an install.
Two things follow. Maintenance billed in advance is not earned when the money lands, so the unearned part needs carrying as deferred income rather than dropping into profit and making a quiet quarter look strong. And the VAT treatment splits. Install work inside the scheme for a VAT registered contractor falls under the domestic reverse charge. Maintenance outside the scheme does not, so you charge VAT as normal.
One customer can be on the reverse charge for their installation and standard VAT for their service contract, on invoices going out in the same month.
F-gas and the cost of keeping engineers certified
Company F-gas certification, engineer qualifications, refrigerant handling records and recovery kit are a standing cost of trading, and most firms bury the lot in general overheads.
Pull it out as its own cost line. It tells you what an engineer costs before a single job is booked, which is the number you need when you price labour and when somebody leaves. On a firm running eight engineers that spend is larger than most owners expect, and it is the first thing cut in a slow quarter, which is the worst time to cut it.
What the service book does to what the firm is worth
Nobody buys an HVAC business for its installation turnover. Installs are won one at a time and gone once finished.
Contracted maintenance is different. It renews, it comes with a customer list attached, and a buyer can see it continuing after you have gone. Firms that track maintenance income separately from the start have a clean story to tell. Firms that put everything into one sales figure have to reconstruct it halfway through a deal, and the number always comes out worse than they hoped.
Splitting install from service shows you something useful in the meantime. Plenty of HVAC firms find their service work quietly carries the business while the big installs they chase hardest make very little.
What we do
CIS applied job by job, with installation and repair treated as the different things they are.
Deductions reclaimed where a contractor took them on work outside the scheme.
VAT set up so the reverse charge lands on contract installs and stays off your maintenance invoices.
Deferred income handled properly on contracts billed in advance, so profit shows in the month it was earned.
Job costing split between install and service, so you can see which one is paying for the other.
Plus the ordinary compliance. Underneath it all, the usual. Year end accounts, corporation tax, VAT, payroll and self assessment.
Who we work with
UK air conditioning, ventilation and mechanical services limited companies turning over between £500,000 and £5 million, anywhere in the UK.
Common questions
Do air conditioning firms need to register for CIS?
If you install systems for contractors, or pay subcontractors on construction work, yes. A firm doing only servicing and repair often does not, though few HVAC firms stay on that side of the line for long.
Is a service call inside CIS?
No. Repairing or replacing a component within a system that already exists is not installation of a system, so it falls outside the scheme.
We replaced most of a system but kept the pipework. Which is it?
It turns on whether you replaced a system or parts of one. Record what came out and what stayed before you invoice, because that is the evidence you will need.
Does the reverse charge apply to our maintenance contracts?
Generally not. The reverse charge follows CIS scope, and maintenance sits outside it. Your install work for a VAT registered contractor is a different answer.
Should we bill maintenance annually in advance?
It helps cash flow and it is worth doing, as long as the accounts carry the unearned part as deferred income instead of recognising it all on day one.
Book a call. We will take your last twelve months of invoices and tell you which jobs were installation, which were repair, and what CIS has been deducted that should never have been.
Common questions
Does CIS apply to air conditioning and hvac contractors?
Installing a system is inside the Construction Industry Scheme. Repairing or replacing a component within a system that is already there is outside it. Installation of systems of heating, ventilation, air conditioning and power supply is a named construction operation, so a new system going into a building is in the scheme.
Does the VAT domestic reverse charge apply to air conditioning and hvac contractors?
It follows the CIS answer above. Where the work falls inside CIS and your customer is VAT registered, registered under CIS and is not an end user, the reverse charge applies and you do not charge VAT. Where the work falls outside CIS, or the customer is an end user or a homeowner, you charge VAT as normal. Two jobs in the same week can be treated differently.