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VAT: domestic reverse charge for building and construction services

Sophie Warner - August 14th, 2020

On 5 June 2020 HMRC have announced that this change will be delayed by a further 5 months until 1st March 2021


The new VAT reverse charge will apply to businesses registered for VAT and which supply or receive standard or reduced rate services that are reported under the Construction Industry Scheme.


You will need to consider whether the supply of service is to an “end user” or “intermediary”. If the supply is to an end user then the reverse charge will not apply and you should charge VAT as normal.

An “end user” is a business who does not make an onward supply of building and construction services but is registered as a contractor because they carry out construction operations. Intermediary suppliers are connected or linked to end users – being part of the same group or sharing an interest in the land used for the construction.

It will be up to the customer to notify the supplier whether they are an end user (or intermediary) and therefore that VAT should be charged in the usual way. HMRC have provided sample wording that can be provided and should be kept in written form

‘We are an end user for the purposes of section 55A 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.’

Otherwise, if you determine that the reverse charge should apply, you should check the VAT status of your customer.

You should also have details of your Customer’s CIS registration. You will not need to verify them but should hold a copy of their verification of you, or a deductions certificate that they have provided for you.

If your business is the customer then you will need to consider whether you are an end user and notify your supplier accordingly.


The reverse charge will mean that the customer receiving the supply will pay the VAT to HMRC instead of the supplier. The customer would also recover the VAT charged subject to the usual rules on recovering VAT inputs.

Invoices will need to include all the usual items needed on a VAT receipt but will need to be updated to show clearly that the domestic reverse charge applies and that the customer must account for the VAT and state the VAT rate applicable. An example of applicable wording is:

“Reverse charge: Customer to pay the VAT to HMRC”

 We are aware that some accounting systems may not have the facility to correctly record the domestic reverse charge when it is first introduced but would expect that there will be a workaround so that such transactions will be correctly shown on invoices and included in VAT returns as they should be.


The change of system will have an impact on business cash flow. In the past you would have charged VAT on supplies, been paid by customers and held the VAT for up to 3 months before it as paid to HMRC. From 1 October, you will no longer collect VAT on services which come under the new scheme and therefore will potentially have less funds to cover VAT incurred on purchases until you can recover the VAT inputs (VAT on purchases). You may need to consider whether you want to continue with cash accounting for VAT as this may no longer provide an advantage to you if significant sums of output VAT (VAT on sales) are no longer being collected. You can also consider whether a change to monthly VAT returns would be useful if a significant amount of your business will come within the scope of the charge.

More details can be found on HMRC website, or you can contact us to gain more information on if /how it may affect you and your business. HMRC will be applying a “light touch” in regard to penalties for the first six months of the new scheme.

This HMRC flowchart is also useful.


The information included in this article is provided for general informational and educational purposes only and is not a substitute for professional advice. The use of or reliance on any information contained is solely at your own risk.

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