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VAT: Guidance on reverse charge for construction industry

3rd Dec 2018
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From 1 October 2019, the customer rather than the supplier will have to account for VAT due on certain building services when they are reported under CIS regulations.

HMRC has just released its first draft guidance and updated draft legislation on the reverse charge for construction services. Essentially, HMRC will require building contractors to charge themselves VAT, but new VAT rules will also affect other trades associated with the building industry.

How the reverse charge will work

Under the reverse charge (RC) a VAT-registered business that supplies certain construction or building services to another VAT-registered business for onward sale is required to issue an invoice stating that the service is subject to the domestic reverse charge. The recipient/customer, if it is VAT registered, must then account for the VAT due on that supply via its VAT return at the appropriate rate, instead of paying the VAT to the supplier. The recipient may recover that VAT amount as input tax, subject to the normal rules – this would normally mean a nil net tax position with no VAT being due to HMRC.

The legislation update confirms that the value of reverse charge services received will not count towards the VAT registration threshold for the customer, which is good news for smaller businesses. It also confirms that if there has already been a domestic reverse charge supply on a construction site, any subsequent supplies on that site between the same parties can be treated as domestic reverse charge supplies if both parties agree.

The legislation stipulates that if there is a reverse charge element in a supply then the whole supply will be subject to reverse charge if the parties agree. It will also cover the provision of construction services that include materials. Therefore, the impact of this change is wide.

Excluded services

The reverse charge will not apply if:

  • the supplies concerned are zero-rated – such as the construction of housing;
  • services are supplied to an ‘end user’ such as a property owner, or directly to a main contractor that sells a newly completed building to a customer;
  • 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.


The guidance issued by HMRC so far lacks detail. It is expected that this will be expanded with examples and further detail to be available in Spring 2019.

It is not clear yet whether a separate public VAT Notice will be issued. HMRC has been asked to provide much more detail on the VAT accounting processes, as the reverse charge concept will be unfamiliar to most traders in this sector. HMRC has also promised a draft wording for ‘end user’ declarations.


The impact on trades in the building industry will be significant. Suppliers will need to identify customers liable to account for the RC 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.

There is an equal challenge for VAT-registered end users that may not be aware of the need to provide evidence of their end-user status. It is now clear that there won’t be a legally enforceable certification process. So whilst the legislation says that if a supply of RC services is made to an end user, VAT should be charged by the supplier, the guidance states that if a customer fails to confirm end user status then the supplier does not charge VAT and the customer will be liable for the output VAT and input VAT obligations under the RC. There appears to be no statutory basis for this and it is not clear what would happen in the event of a dispute.

Making Tax Digital clash

At time of writing the reverse charge will be introduced in the first year of the government’s Making Tax Digital (MTD) project, and at the start point of MTD for those businesses who are deferred from the 1 April 2019 start date. It will be important for businesses to check that the software they choose for MTD will be able to cope with the RC for construction services. Invoices under this RC procedure will require a statement which identifies the supply as reverse chargeable.

The HMRC guidance states that the invoice should clearly state the amount of VAT due under the RC, but “should not be included in the amount shown as total VAT charged” – this could lead to confusion when invoices are posted.

Transition period

More clarity is needed on the treatment for construction works which may have been supplied or contracted for before 1 October but paid for afterwards, and on what happens if a customer either ceases to be or becomes an end user during the course of a contract.

Replies (6)

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By PitiBev
04th Dec 2018 10:35

Can I ask where / what HMRC legislation includes the following as I need to verify this for our client monthly newsletter.
''The legislation update confirms that the value of reverse charge services received will not count towards the VAT registration threshold for the customer''

I've looked everywhere, but as usual HMRC have made this incredibly difficult to find.

Thanks (0)
Replying to PitiBev:
Linda Skilbeck
By Linda Skilbeck
05th Dec 2018 23:46

It's in Article 10 of the draft SI here This disapplies s 55A(3) of the VAT Act (which contains provisions relating to VAT registration in respect of domestic reverse charges).

Thanks (1)
By Hilary Oldham
21st Dec 2018 15:12

Any thoughts on employment businesses - can you think of any VAT cases where there has arisen the question of whether the supply is of staff, or of construction services.
HMRC policy have implied (though not categorically) that labour agencies are unaffected, but is there a chance they are supplying construction services sometimes and thus under this legislation?

Thanks (0)
By m4rt1n
04th Mar 2019 16:19

Would a Ltd company subsidiary of a Housing Association that carry out repair works for the parent also have to account for the VAT reverse charge in construction scheme where CIS suppliers are used?

I can see the parent themselves would qualify as an 'end user' and a 'deemed contractor' under CIS does not apply with regards to the reverse charge, but I cannot see guidance if there is a requirement to account for reverse charge for a subsidiary within the VAT group.

I hope the subsidiary would qualify by extension of the parent being an end user as the subsidiary's remit is to assist charitable objectives of the parent through gifting profits etc, but more likely I fear the subsidiary has to account for reverse charge invoices?

Thanks (0)
By sandrachinn
04th Apr 2019 11:55

Will we be required to issue a monthly statement for VAT much like the CIS statements we issue where a deduction for tax has been made? Or does the remittance we provide with payment suffice?

Thanks (0)
By Claire Davis CSD
19th Jun 2019 15:16

Can I ask if this is only applicable to subcontractors that are VAT registered?
Most of the ones my client deals with are below the threshold, but are under CIS
Will these subcontractors need to register for VAT if they are under CIS?

Thanks (0)