VAT reverse charge for construction guide

Since 1 March 2021, the domestic VAT reverse charge must be used for most supplies of building and construction services. It brings with it legal obligations, and it’s important to know when it should be used and when it shouldn’t. Take a look at the details of the charge, and discover where to get more information if you need it.

When does the VAT reverse charge apply?

The domestic VAT reverse charge for building and construction services applies to standard as well as reduced rate VAT services for individuals and businesses who are registered for VAT in the UK reported within the Construction Industry Scheme (CIS). Interior designers who pay subcontractors to carry out construction work – which includes painting and decorating – should be registered as contractors with the CIS.

The reverse charge applies for services such as constructing, altering, repairing and extending buildings, and painting or decorating the inside or external surfaces of any building. It also includes installing heating and lighting, among other things.

Be mindful that the reverse charge shouldn’t be used for the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants. Nor for installing seating, blinds and shutters.

The government has published flowcharts that show when to use the reverse charge.

Supply of building and construction services

The reverse charge must be used by:

• Those who are VAT registered in the UK
• Those who supply building and construction industry services

And where the following are also the case:

• The customer is UK VAT registered
• Payment for the supply is reported under the CIS
• The services supplied are standard or reduced rate
• The customer has not given written confirmation that they are an end user or intermediary supplier.

An end user is a business or group of businesses that are VAT and CIS scheme registered and do not make onward supplies of the building and construction services they receive. There is not always an end user for reverse charge purposes in each construction supply chain. If services are provided to a domestic customer, for example, the reverse charge doesn’t apply because the customer won’t be VAT registered.

As for an intermediary supplier, these are VAT and CIS registered businesses that are connected or linked to end users. You can check out the full details on end users and intermediary suppliers from the government.

It is the responsibility of the supplier of building and construction services to

• Check the customer’s VAT number and CIS registration
• Review contracts to decide if the reverse charge will apply and tell the customers
• Ask the customer to confirm if they are an end user or intermediary supplier
• Record the reverse charge in their accounts. 

Buying of building and construction services

Using the reverse charge has been required since 1 March 2021 for:

• Those who are UK VAT registered
• Those who buy building and construction industry services

And when the following criteria apply:

• Payment for the supply is reported under the CIS
• The supply is standard or reduced rate
• They are not hiring either staff or workers or both
• They are not using end user or intermediary exclusions (see above).

If these apply, the buyer of building and construction services must check if the supplier has a valid VAT number; tell the supplier if they are an end user or intermediary supplier (since in that case the reverse charge doesn’t apply); and find out how to account for the charge. There are details on what to do (including accounting for the charge, checking invoices, being sure which services must use the reverse charge, and recording the reverse charge on a VAT return and reclaiming it) in the full information from the government.

Need more on the reverse charge?

There is detailed information on all aspects of the VAT reverse charge available from HMRC. If you’d prefer to watch a webinar about the VAT reverse charge, check out the recorded version.

It explains when to apply the reverse charge, how it should be shown on invoices, how to account for it on a VAT return, and more.

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