Reverse Charge for Construction Services

Important VAT accounting change for construction supplies effective 1 March 2021.

A domestic VAT reverse charge is being introduced for certain building and construction related supplies, changing the way in which the VAT on supplies is accounted for.

Rather than the supplier (or sub-contractor) charging and accounting for the VAT, the customer (or building contractor) will account for it themselves, hence the ‘reverse charge.’

Will this affect me?

If you make and/or receive supplies of construction services, where payments are required to be reported through the Construction Industry Scheme (CIS) then this change may affect you.

The change will apply to the supply of services between VAT registered building contractors and VAT registered sub-contractors, which are subject to VAT at the standard rate of 20% and the reduced rate of 5%.

Contractors and sub-contractors include anyone who is acting in that capacity by making a supply of building work, regardless of whether this is their normal activity.

End users

The reverse charge does not apply to supplies to end users. For the purposes of the reverse charge for construction, consumers and final customers are called end users.

Businesses or groups of businesses that are VAT and Construction Industry Scheme registered, but do not make onward supplies of the building and construction services supplied to them, are considered end users.

The end user must provide written confirmation to their contractor of their end user status in order for the reverse charge not to apply.

It is important to note that if a written notification is not made correctly, the customer will be liable for accounting for the VAT that should have been charged under the reverse charge.

Further information on the introduction of the VAT reverse charge for construction can be found by downloading our factsheet below. Our factsheet includes a helpful flowchart to determine if the new domestic reverse charge rules or normal VAT rules apply.

Also available to download are our factsheets on applying the reverse charge within QuickBooks, Sage and Xero.