This was delayed but now comes into force from 1 March 2021

What does it mean?

The measure will, for supplies of construction services (within the Construction Industry Scheme), mean that the customer will be liable to pay the VAT to HMRC rather than pay it to the supplier. The supplier will therefore just receive the net of VAT amount on its invoices. (It will not apply to construction services provided to the end user, e.g. domestic work.)


Who will be affected?

Businesses involved in buying and selling construction services. It does not apply to zero-rated supplies of construction services.

Unlike other types of reverse charge, the value of such reverse charge services will not count towards the VAT registration threshold, which is good news for smaller businesses


Which services will it apply to?

Generally, it will apply to services that are defined as construction operations for purposes of the Construction Industry Scheme (CIS). Among those included are construction, alteration, repair, extension, painting and decorating, plus the demolition of buildings, civil engineering and the installation of heating, lighting and air-conditioning.

The legislation is designed so that if there is a reverse charge element in a supply then the whole supply will be subject to the domestic reverse charge.

Services excluded from the domestic reverse charge

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic
  • signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

When will the supply of relevant services not apply for reverse charge purposes?
Basically, the reverse charge applies, except when the supply is made to an end-user or the recipient is not VAT registered.
So you can say that it applies unless –

  • The service and goods are supplied to the property owner, or to a main contractor that sells or lets a newly completed building
  • The recipient makes onward supplies of those construction services to a connected company
  • The recipient is not VAT registered, or required to be VAT registered
  • The recipient is not registered for the CIS scheme
  • The supplier and recipient are landlord and tenant or vice versa, or
  • The supplies are zero-rated.

How do I invoice under the reverse charge?

Invoices for services subject to the domestic reverse charge must include all the information required on a normal VAT invoice. However, they must make it clear that the domestic reverse charge applies and that the customer is required to pay over the VAT.

We suggest the following wording is used on the invoice – “


“Reverse charge : UK Customer to account to HMRC for the VAT due on the VAT exclusive price of items at the relevant VAT rate as shown above.”
Although you show the VAT due, at either 20% or 5%, the invoice should also show the amount actually payable, which is the net of VAT amount.

How will this impact on my business?

Construction businesses will need to ensure their accounting systems are capable of processing reverse charge supplies and make ongoing checks to ensure that supplies and purchases are correctly treated.
Subcontractors that rely on VAT collected from their customers as working capital until they have to pay it to HMRC are likely to suffer from the loss of cash flow. These businesses and even their customers will need to consider if payment terms need to be revisited to avoid problems in the supply chain.

What action should I take?

Construction businesses should:

  • Review supplies made to and received from other VAT registered contractors to establish where these will be subject to a reverse charge from March 2021
  • Obtain notification from customers that they are an end user or if not confirmation of their VAT registration and CIS status

Notification of end user or intermediary status can be made:

  • on paper and sent by post
  • electronically in an email
  • in a contract

The notification should be kept as part of normal business records and show clearly what supplies are covered.


How will I be affected if I use one of the VAT schemes?

Cash Accounting Scheme

The Cash Accounting Scheme cannot be used for the supply of services that are subject to the reverse charge.
You can still use the Cash Accounting Scheme for supplies that are not within the reverse charge. However, you’ll have to use cash accounting for your purchases so you may find that the Cash Accounting Scheme no longer helps your cash flow. If this is the case, you can withdraw from the scheme.

Flat Rate Scheme
Reverse charge supplies are not to be accounted for under the scheme. Therefore, users of the scheme will have to consider if it is still beneficial to them when VAT is not being paid to them on some or all of the invoices they issue.
Flat Rate Scheme users who receive reverse charge supplies will have to account for the VAT due to HMRC.


If I am a contractor receiving the service when do I pay the VAT over?

You should include it in your VAT return for the period of the date of your supplier’s invoice or the date on which you pay your supplier, whichever comes first.
You will pay the VAT over and recover it simultaneously on the same VAT Return.


How do I complete my VAT return?

Suppliers must not enter any VAT on sales to which the reverse charge applies in box 1 of the VAT Return. The net value of the sale must still be entered in box 6.

Purchasers must enter the VAT on purchases the reverse charge applies to in box 1 of the VAT Return, but you do not enter the net value of the purchase in box 6.

You may reclaim the input tax on your reverse charge purchases in box 4 subject to the normal rules, and you should enter the net value of the purchases in box 7 as normal.