New UK VAT reverse charge rules for construction services

4 min read

A major change in the way that VAT is collected in the construction industry came into effect on 1 March 2021. Under new domestic "reverse charge" VAT rules, VAT-registered recipients of certain types of building and construction services are required to pay the VAT due directly to HMRC instead of paying it to the supplier. The new rules apply where the "tax point" falls on or after the implementation date, so supplies made under a contract entered into prior to, but invoiced on or after, 1 March 2021 may fall within the new regime. Businesses will need to carefully consider whether services they supply, or receive, fall within the new VAT regime and check that their contracts under which construction services are supplied adequately cater for the new rules.


Which services are caught?

The new domestic reverse charge (DRC) regime applies, broadly speaking, to supplies of "specified services" by a VAT registered person to another VAT registered person who is registered under the Construction Industry Scheme (CIS) and who has not confirmed in writing that they are an "end user" or an "intermediary supplier".
The definition of construction services for the DRC regime is substantively the same as the definition of construction operations used in the context of the CIS. Accordingly, the following services (amongst others) will fall within scope:

  • Constructing, altering, repairing, extending, demolishing and dismantling of buildings, structures and works forming (or to form) part of the land such as walls, roads and power lines.
  • Installing heating, lighting, air-conditioning, drainage and other systems.
  • Painting or decorating the outside or inside of a building.
  • Preparatory work such as cleaning, site clearance, earth-moving excavation, laying foundations and erecting scaffolding (with labour).

Where goods and building materials are provided together with construction services and in the course of the construction work the reverse charge will also apply to these goods.

The two key exceptions to the DRC regime are: (i) supplies to "end users" (i.e., where a customer uses the construction services for its own use, as a final customer); and (ii) supplies to "intermediary suppliers" (for example where a landlord procures works on behalf of its tenant). Supplies to both types of customer will fall outside the scope of the DRC regime provided that the customer has served a written notice confirming their status as an end user or an intermediary supplier before the time of the relevant supply.

The DRC legislation is designed so that if there is a reverse charge element in a supply, then the whole supply is subject to the domestic reverse charge. However, HMRC guidance, in what appears to be a concession, provides that where the reverse charge would ordinarily only apply to 5% or less of the value of the whole supply it is possible to disregard the reverse charge and apply normal VAT rules.



Invoices for services subject to the DRC must include all the information required on a standard VAT invoice, including how much VAT is due under the reverse charge or the rate of VAT, but must also make it clear that the DRC applies and that the customer is required to account for the VAT. There is no prescribed wording for this but HMRC provide examples of suitable wording in their published guidance.


What actions should businesses take?

As well as considering the impact of the new rules on their invoicing arrangements and cash flows, businesses should review all of their new and existing contracts under which construction services are provided and consider whether it is appropriate to include:

  • a warranty from the recipient of relevant supplies that it is an "end-user" or "intermediary supplier" so that the reverse charge does not apply; and
  • HMRC's suggested standard wording for intermediary suppliers and end-users in written communications: "We are an end user for the purposes of section 55A of VAT Act 1994 reverse charge for building and construction services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge."

Suppliers routinely dealing with end-users and intermediary suppliers might also wish to include a presumption of their customers' status in their contracts, placing the onus on customers to rebut this.

Contractual VAT provisions should also be checked to confirm that they adequately cater for situations where the reverse charge applies.


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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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