**UPDATE 11/09/2019**


HRMC have announced that the implementation of the VAT reverse charge for building and construction will be delayed by 12 months from the original implementation date of October 2019. This is in response to industry representations asking for more time to prepare. This delay will be taking into account where businesses have already changed their processes and invoices to comply.

For further information or advice please Contact Us


Introduction to the VAT reverse charge for building and construction.

From 1 October 2020, HMRC are introducing a new UK-wide approach to how VAT is reported in the construction industry. The measures specifically affect the supply of construction services between construction businesses. Our expert team explain what you need to know about the Construction Services Domestic Reverse Charge (CSDRC):

Background to the Construction Services Domestic Reverse Charge

HMRC are targeting VAT fraud in the construction industry. Loss of VAT revenue through “missing traders” is increasingly an issue so HMRC are introducing new legislation to tackle it. Missing Trader fraud is where a supplier charges VAT to a customer on the services provided, is paid the VAT but then goes “missing” before paying it to HMRC.

The new legislation is a “VAT reverse charge” and similar measures are already in place in industries like the supply of mobile phones and computer chips.

When referring to VAT, a reverse charge means that the buyer now becomes responsible for accounting for the VAT rather than the supplier.

From October this year, the construction industry will need to comply with these new measures by adapting some of their processes and making sure they understand where they fit in the supply chain.


How the reverse charge will work

Under the construction services reverse charge, a VAT-registered business that supplies specified construction or building services to another VAT-registered business for onward sale will be required to issue an invoice stating that the service is subject to the VAT reverse charge.

If the customer is VAT registered (or liable to be VAT registered), they must account for the VAT due at the appropriate rate via their VAT return, instead of paying the VAT to the supplier as they would usually.

The customer may recover that VAT amount as input tax, subject to the normal rules.

Invoices issued by subcontractors to which the reverse charge applies must show all the information that is normally required to be shown on a VAT invoice (but no VAT charged) and the invoice must state that the reverse charge applies and the customer is to account for VAT.


What supplies does the reverse charge apply to?

The construction services reverse charge only applies to the specified supply of construction services between businesses (B2B) and not supplies made to consumers (B2C) or “end users”. End users are the final customers or those who receive construction services but do not supply them on.

This is because the legislation is designed to prevent missing trader fraud which can only be perpetrated by businesses.

Specified supplies currently subject to either the standard rate or reduced rate will be subject to the domestic reverse charge. The reverse charge will also apply to any goods supplied within the specified services.


 What are specified construction services?

The definition of services that are included in the new legislation is the same as that used in the existing Construction Industry Scheme (CIS) under section 74 of the Finance Act 2004, so will already be familiar to most businesses operating in the industry.

These supplies include (but will not be limited to):

  • Construction, extension, demolition, alteration or repair of buildings or of any works forming part of the land.
  • Installation in any building (whether or not in the course of construction) of a heating, lighting, air conditioning, power, water or drainage system.
  • Internal cleaning of buildings (when carried out in the course of construction, extension, etc).
  • Painting or decorating the internal or external surfaces of any building.
  • It also applies to those services which form an integral part of any of the services described above or are preparatory to them or for rendering them complete.


What supplies and services are excluded from the Construction Services Domestic Reverse Charge?

The reverse charge will not apply to:

  • Services supplied to an ‘end user’ such as a property owner or private customer, or directly to a main contractor that sells a newly completed building to a customer.
  • Where the recipient makes onward supplies of those construction services to a connected company; or
  • The supplier and recipient are landlord and tenant or vice versa.
  • ‘Deemed contractors’, i.e. those caught by CIS but who are actually end-users.
  • Manufacture of components for systems of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection.
  • Professional services of architects or surveyors, building consultants etc.
  • Installation of seating, blinds and shutters.
  • Installation of security systems such as burglar alarms, closed circuit television and public-address systems.
  • Where a supply is zero-rated for VAT purposes (for example most services related to housebuilding) there is obviously no risk to the Exchequer from “missing trader” fraud and such supplies are not within the CSDRC.
  • Supplies made by someone who is neither registered nor required to be registered for VAT (for example, where the supplier is below the VAT registration limit).
  • Where there is a de minimis limit: where in any month the value of CSDRC supplies made to a particular customer does not exceed £1,000, those supplies fall outside the scheme.



The implications of the Construction Services Reverse Charge on trades in the building industry will be significant.

  • Construction businesses will need to adapt their accounting systems to process reverse charge supplies and then make ongoing checks to ensure that supplies and purchases are correctly treated.
  • Some businesses may suffer a loss of cash flow where VAT is no longer charged as they will no longer be able to use the VAT they collect from customers as working capital before they pay it over to HMRC. By the same token, contractors will no longer suffer a delay between paying out VAT and recovering it, since both will now be dealt with on the same VAT return.
  • Depending on their nature, construction services may be subject to VAT at the standard rate of 20%, the reduced rate of 5% or zero-rated. Under the new reverse charge, the recipient would be responsible for identifying the correct VAT treatment of a service provided to them by another contractor, which may not always be simple to verify.
  • To determine whether the reverse charge applies, it will be necessary for contractors to disclose to their subcontractor whether or not they are at the end of the supply chain – information which could, in some cases, be commercially sensitive.
  • If the end user does not provide its supplier with confirmation of its end user status, the end user will be responsible for accounting for the domestic reverse charge.
  • Suppliers will need to identify customers liable to account for the reverse charge by checking VAT registration numbers and obtaining evidence that a customer is an end user or not, so that VAT, if due, will be invoiced correctly.



You can read the official information on HMRC’s website, and we will keep you updated as more details are released.

HMRC say support will be available for all businesses who could be affected by the reverse charge during the lead in period. Once the reverse charge comes into effect, HMRC will also operate a light touch approach on genuine mistakes and penalties for a six month period.

To talk about the changes in more detail or if you have any concerns, our expert team are always happy to help. Please contact us to discuss.


Next steps

Suppliers who will be subject to the Construction Services Domestic Reverse Charge should:

  • Consider the adaptions that will need to be made to their accounting systems to deal with this change.
  • Review supplies made to and received from other VAT registered contractors to establish whether these will be subject to a reverse charge from October 2020.
  • Consider the impact on cash flow from October 2020 of not receiving the payment of VAT from customers and decide if there are any other ways to mitigate this financial impact.
  • End users who have to report payments through CIS may need to tell their suppliers that they are end users and that the reverse charge should not apply. This will require familiarisation with the new rules and writing to their supplier where end user status applies.
  • Contact our team for more information and advice.