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Reverse charge for building and construction services

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HMRC has published further guidance on the VAT domestic reverse charge applying from 1 October 2019 to supplies of building and construction services, supplementing the guidance note published in November 2018.

The reverse charge means the customer receiving the service will have to pay the VAT due to HMRC, instead of the supplier. It will affect businesses who supply specified services that also need to be reported under the construction industry scheme (CIS). Legislation introducing the change is now contained in the Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order, SI 2019/892.

The new guidance includes more detail and examples to help suppliers check whether their customers are end users or intermediaries. The reverse charge does not apply to customers who are end users, or if they are ‘intermediary suppliers’. The concept of intermediary suppliers means that if a group of connected businesses collaborate to purchase construction services, they are all treated as end users and the reverse charge will not apply to their purchases. For this purpose, intermediary suppliers are VAT and CIS registered businesses connected or linked to end users, who:

  • share a relevant interest in the same land where the construction works are taking place; and
  • belong to the same corporate group or undertaking (as defined in Companies Act 2006 s1161).

The guidance suggests a practical way of dealing with the question of end-user status would be for businesses to include a statement in their terms and conditions to say they will assume their customer is an end user, unless they say they are not. This would place a responsibility on the customer to respond if this is not the case.

HMRC acknowledges that some businesses who have large numbers of active contracts with sub-contractors at a variety of sites may have difficulty establishing whether the reverse charge applies or not in the run-up to 1 October 2019. The guidance therefore states that where contractors can see that the reverse charge applies to more than 5% (by volume or value) of all contracts with a particular sub-contractor, they may apply the reverse charge to all contracts with that sub-contractor.

Transitional arrangements mean that normal VAT rules will apply to invoices for supplies entered into customers’ accounting systems before 1 October 2019, if payment is made on or before 31 December 2019. The reverse charge will apply in all cases where invoices are entered into systems on or after 1 October 2019, or payment is made on or after 1 January 2020.

The guidance now covers situations in which businesses may become repayment traders (i.e. their VAT return is a net claim from HMRC instead of a net payment), as a result of the reverse charge removing the need to pay VAT on some of their sales and touches upon how best to time the move from quarterly to monthly returns.

Examples are also given of how the reverse charge will apply to supplies of construction services made to certain sectors, such as utility companies and local authorities or other public bodies, including planning gain agreements. Employment businesses who supply staff, and who are responsible for paying the temporary workers they supply, are not subject to the reverse charge.

See VAT: domestic reverse charge for building and construction services (

Issue: 1447
Categories: News