Apply the VAT reverse charge on construction services

Check whether the reverse charge applies

As a UK VAT-registered supplier, you use the reverse charge when all of these are true:

• Your customer is registered for VAT in the UK.
• Payment for the supply is reported within the Construction Industry Scheme (CIS).
• The supply is standard-rated or reduced-rated.
• You are not an employment business supplying staff or workers.
• Your customer has not confirmed in writing that it is an end user or intermediary supplier.

As a UK VAT-registered customer, you account for the reverse charge on the same conditions. Check that your supplier has a valid VAT number, and use the CIS online verification service to check your customer's CIS registration. A customer that is a contractor for CIS purposes may not appear in that check. If so, ask it to confirm in writing that it reports under CIS before you apply the reverse charge.

Where you sell only to private householders or other consumers, you do not need to check the VAT or CIS status of each customer: normal VAT rules apply.

Services the reverse charge covers

Supplying the labour alone, as a labour-only subcontractor, is covered.

Supplies outside the reverse charge

The reverse charge also does not apply to zero-rated supplies, such as building work on new dwellings. It does not apply to the hire of goods without labour, or to supplies of workers by an employment business. HMRC treats you as an employment business, not a labour-only subcontractor, when the customer directs and supervises the workers, pays an hourly or daily rate against timesheets and is responsible for correcting defects. It treats you as a labour-only subcontractor when you quote a price or measured rate for the job and are responsible for the quality of the work.

Customers that are end users or intermediary suppliers

A contractor working for a private householder is still not an end user, so its subcontractors still apply the reverse charge.

If a customer does not make the notification correctly, it is liable to account for the VAT that should have been charged under the reverse charge.

You can notify a supplier by post, by email or in a contract that you have agreed to in writing, and you should say which supplies it covers. A notification does not need re-issuing if you move between end user and intermediary supplier. HMRC suggests this wording:

We are an end user for the purposes of section 55A VAT Act 1994 reverse charge for building and construction services. Issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge.

If your circumstances change during a contract, so that the VAT treatment switches between the reverse charge and normal VAT, tell your supplier. The new treatment applies from the point your circumstances changed. If the change falls within an invoice period, the supplier can apply it to the whole period or wait until the next one.

Supplies that mix construction services with other work

Goods supplied with construction services, such as supply and fix work, are a single supply, and the reverse charge applies to the full value. This still applies if you issue separate invoices for the supply and the fix. Linked contracts for labour and materials on the same site are treated the same way, so you cannot take the materials outside the reverse charge by splitting the paperwork.

If the part of a supply that falls under the reverse charge is 5% or less of its value, you can disregard it and use normal VAT rules for the whole supply. You and your customer must agree this at the start of the contract, and you must measure the 5% against the overall contract value, not invoice by invoice. The disregard does not apply where the main element of the supply is zero-rated.

Invoice the customer

Account for the VAT

If you use the Flat Rate Scheme, leave reverse charge sales out of your flat rate calculation.

As a customer, you account for the VAT when you pay the subcontractor, unless it issued a tax invoice earlier, in which case you use the invoice date.