What is the construction industry VAT reverse charge?
Answered 11 March 2026
Here is a comprehensive explanation of the construction industry VAT reverse charge:
The Construction Industry VAT Reverse Charge
What the law says
The domestic reverse charge for building and construction services is defined in SI 2019/892, arts. 5–7, with its scope based on the Construction Industry Scheme (CIS) as set out in Finance Act 2004, s.63(2).
The reverse charge applies to standard and reduced-rated construction services where:
- The supplier is VAT-registered in the UK;
- The customer is VAT-registered in the UK; and
- The payments are reported within the Construction Industry Scheme.
It has applied from 1 March 2021.
HMRC guidance / practice
Purpose
The construction reverse charge is a measure designed to counter criminal attacks on the UK VAT system, including missing trader fraud, within the construction sector.
How it works
Where the reverse charge applies, the supplier does not charge VAT. Instead, the liability to account for VAT shifts to the customer, who:
- Accounts for the VAT as output tax in Box 1 of their VAT return; and
- Can generally also recover it as input tax in Box 4 (subject to normal recovery rules).
This produces a nil net effect for the customer in most cases, while removing the opportunity for a fraudulent supplier to collect and then steal the VAT.
Scope — "specified services"
The reverse charge covers construction operations reported within the CIS, but excludes supplies of workers provided by employment businesses. The reverse charge continues to apply up the supply chain until services are supplied to a non-taxable person or a taxable person who is not making onward supplies of construction services.
Six situations where the reverse charge does NOT apply:
- Supply of workers by an employment business;
- The supplier is not VAT-registered (or required to be);
- The customer is not VAT-registered (or required to be);
- The supply is zero-rated;
- The supplier and customer are both part of the same VAT group; or
- The customer is an end user or intermediary supplier and has notified the supplier in writing.
End users and intermediary suppliers
An end user is a business that does not make onward supplies of the construction services received. The reverse charge does not apply to supplies to end users, provided they notify their supplier in writing of their end user status.
An intermediary supplier (as defined in SI 2019/892, art. 2(1)) is a VAT- and CIS-registered business connected or linked to an end user that re-supplies specified services without material alteration. The reverse charge does not apply to supplies to intermediary suppliers where they notify their supplier of their status in writing.
Invoicing
Where the reverse charge applies, the supplier's invoice must not charge VAT but must make clear that the reverse charge applies.
Practical impact
Businesses should check whether their accounting systems can handle the reverse charge and consider the cash flow impact, since suppliers will no longer receive VAT from their customers.
Citation sources
Where the construction reverse charge applies, the supplier of the services does not charge VAT, and the liability to account for the VAT shifts from the supplier to the customer. The customer does not pay any VAT to the supplier, but accounts for it as output VAT in box 1 of their return, and can also generally recover it as input VAT in box 4 of their return (subject to normal VAT recovery rules). This produces the same net result as if the customer had paid VAT to the supplier, the supplier h
Where supplies are subject to the reverse charge, the supplier should refrain from charging VAT and make clear to their customer on their invoice that the reverse charge should be applied (see VATREVCON37100 for more information on invoicing). However, if the reverse charge has not been applied and instead VAT has been accounted for as normal (and there is no evidence that the customer was eligible to be treated as an end user and was treated as such by their supplier - see VATREVCON43000 for sp
Intermediary suppliers are VAT and CIS registered businesses that are connected or linked to an end user, and are resupplying specified supplies they receive to that end user without material alteration or further processing, as set out in SI 2019/892 art. 2(1). If a trader buys construction services and re-supplies them to a connected or linked end user, without making material changes to the supplies, they qualify as an intermediary supplier and can be treated in the same way as an end user f
You’ll need to find out how the reverse charge works if you: supply building and construction industry services buy building and construction industry services If the reverse charge does apply you’ll need to: make sure your accounting systems and software can deal with the reverse charge check how it will affect your cash flow — read changes to cash flow and monthly returns in the VAT reverse charge technical guide make sure all your staff who are responsible for VAT accounting are familiar with
The domestic reverse charge for building and construction services (construction reverse charge) is a measure designed to counter criminal attacks on the UK VAT system including missing trader fraud (see VATF23000) within the construction sector. The reverse charge procedure results in a business-to-business (b2b) tax-neutral chain of transactions, with the seller no longer having to account for VAT, removing the opportunity to steal the VAT in b2b transactions within the UK (for examples, see V
ll not be VAT registered. This does not mean that the contractor supplying the householder becomes the end user, because it will still be making onward supplies of construction services. Supplies made to this contractor by subcontractors will therefore still be subject to the reverse charge if the other conditions are met. The 'end user' concept is only relevant where the supplies would ordinarily be subject to the reverse charge, so somebody who is not required to report payments through the CI
The scope of the domestic reverse charge for building and construction services, as defined in SI 2019/892 art. 5-7, is based on that of the Construction Industry Scheme (CIS). The CIS is aimed at preventing evasion of direct taxes by subcontractors working in the industry and who are unknown to HMRC. The essence of the Scheme is that deductions are made at one of two prescribed rates from payments made to subcontractors engaged in construction operations carried out within the United Kingdom, u
From 1 March 2021 VAT domestic reverse charge must be used for some supplies of building and construction services. The reverse charge may apply to standard and reduced-rated services where: they are supplied by businesses who are registered for VAT in the UK they are supplied to businesses who are registered for VAT in the UK the payments are reported within the Construction Industry Scheme To find out if the reverse charge applies to you read Check when you must use the VAT domestic reverse ch