Guidance

VAT reverse charge technical guide

Find technical information about the VAT reverse charge if you buy or sell building and construction services.

If you buy or sell services in the Construction Industry Scheme, you can find more information about it in this guide.

1. End users and Intermediary supplier businesses

End users

For reverse charge purposes consumers and final customers are called end users. They’re businesses, or groups of businesses, that are VAT and Construction Industry Scheme registered but do not make onward supplies of the building and construction services supplied to them.

The reverse charge does not apply to supplies to end users where the end user tells their supplier or building contractor in writing that they’re an end user.

Intermediary suppliers

Intermediary suppliers are VAT and Construction Industry Scheme registered businesses that are connected or linked to end users. If intermediary suppliers buy construction services and re-supply them to a connected or linked end user, without making material alterations to the supplies, they’re all treated as if they’re end users and the reverse charge does not apply.

To be connected or linked to an end user, intermediary suppliers must either:

  • have a relevant interest in the same land where the construction works are taking place, for example, landlord and tenant
  • be part of the same corporate group or undertaking as defined in section 1161 of the Companies Act 2006

The reverse charge does not apply to supplies to intermediary suppliers where the intermediary supplier notifies their supplier or building contractor in writing that they’re intermediary suppliers. Intermediary suppliers can refer to themselves as end users.

Design and build companies as intermediary suppliers

Under a design and build contract, the design and build company will buy in building and construction services from multiple suppliers and will provide them as a single supply to the client of a designed and built building.

If the necessary conditions to be an intermediary supplier are met, for the purpose of the reverse charge, the design and build company is not treated as carrying out material alteration or processing of the services it buys in and so can be treated as an intermediary supplier of building and construction services. This also includes supplies such as scaffolding which are integral to the design and build but are not supplied on.

A design and build company can be a connected party or linked to an end user and therefore, normal VAT rules would apply to supplies bought in.

If the design and build company is not a connected party of or linked to an end user, it will not be regarded as an intermediary supplier. Therefore, the reverse charge will apply to construction services bought in for onward supply.

Written notification

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. Contracts can be either for specific supplies or it can be a Heads of Agreement or call-off type contract for supplies that are to be made at some time in the future.

Where the end user or intermediary supplier notification is in a contract issued by the supplier, this will be a valid notification as long as the customer has given written agreement to the contract.

Once written notification has been given there is no need to re-issue it if the customer changes from an:

  • end user to an intermediary supplier
  • intermediary supplier to an end user

If a written notification is not made correctly the customer will be liable for accounting for the VAT that should have been charged under the reverse charge. It’s important that the person making the notification knows and understands that it’s correct.

An example of the wording to use is:

‘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.’

For the reverse charge not to apply, as well as qualifying as an end user or intermediary supplier, the customer must also make sure they issue a written notification of this to their supplier or contractor. If a customer has not given written confirmation of their end user or intermediary supplier status, the supplier must assume that the reverse charge applies and will not charge VAT to the customer.

2. When to check if your customer is VAT and Construction Industry Scheme registered or an end user

Where sales operations or networks are clearly set for domestic consumer sales it’s not necessary to check the VAT, CIS or end user status of the customer and the normal VAT rules should apply.

If there is any doubt you should always ask the customer whether they’re registered for VAT and CIS and whether or not they’re an end user.

If you often deal with end users or intermediary suppliers, you can include a statement in your terms and conditions to say you’ll assume that your customer is an end user or intermediary supplier unless they say they’re not. This places a responsibility on the customer to respond if this is not the case.

3. Employment businesses supplying construction workers

Employment businesses are treated differently for the purpose of the reverse charge. Supplies by employment businesses are not subject to the reverse charge, even if those supplies are within the scope of CIS.

Employment businesses supplying construction workers are, for VAT purposes, treated as supplying staff rather than building and construction services.

For VAT purposes, such activities of workers are supplies of staff by their employer and not supplies by the workers themselves. The supplier makes a supply of staff for VAT purposes if it provides another person with the use of an individual who is:

  • contractually employed or otherwise engaged by the employment business
  • a director of the employment business

A similar situation arises with joint ventures, the construction firms that are parties to the joint venture provide workers on secondment to work on the joint venture project. Payments by the joint venture to each construction firm for their staff is not payment for construction services and therefore not subject to the reverse charge.

4. Labour only sub-contractors

The reverse charge applies to services provided by labour only sub-contractors. The labour only sub-contractor is responsible for the works carried out and therefore subject to the reverse charge. This applies if the services provided are:

  • standard rated
  • reduced rated
  • within the scope of CIS

A supply of labour only construction services is subject to the reverse charge whereas a supply of staff is not. The simplest way to tell the difference for a supply of:

  • labour only construction services – the business supplying the labour will be responsible for overseeing the completion of the work carried out by the workers
  • staff – the customer that receives the workers will be responsible for overseeing the completion of the work carried out

Distinction between employment businesses and labour-only sub-contractors

Supplies by labour only sub-contractors are subject to the reverse charge if the supplies are within the scope of Construction Industry Scheme and all the other conditions are met.

The supplies made by the employment business are not subject to the reverse charge even if those supplies are within the scope of Construction Industry Scheme.

The supplying business should be treated as an employment business if these features apply:

  • the customer contacts the employment business and asks for X workers for Y days
  • the workers are employed by or engaged by the employment business
  • the employment business provides an hourly or daily rate for the workers
  • a timesheet is used to record the hours and days worked
  • the customer sends the signed timesheet agreeing the hours and days worked to the employment business
  • the customer pays the employment business
  • the customer’s site foreman or managers direct and control the works carried out by the workers
  • the customer is responsible for the works carried out

The supplying business should be treated as a labour only sub-contractor if these features apply the:

  • customer contacts a business and asks for a skilled labourer (for example, a bricklayer, electrician or plumber) to carry out specified services
  • labourers are employed by or engaged by the business
  • business provides a price for the works or agrees a measured rate per square metre
  • supplying business is responsible for the labourer’s works
  • supplying business is responsible for correcting any defects following completion of the works
  • customer, or its representatives, agrees that the work has been carried out or certifies payment for the value of works carried out to date

The reverse charge applies to the services supplied by the business (if those services are within the scope of CIS) and VAT should not be charged on the invoices.

5. How the domestic reverse charge will affect you

HMRC understands that implementing the reverse charge may cause some difficulties and will apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith.

Any errors should be corrected as soon as possible, as the longer under declared or overcharged sums remain outstanding the more difficult it may be to correct or recover them.

HMRC officers may assess for errors during the light touch period, but penalties will only be considered if you are deliberately taking advantage of the measure by not accounting for it correctly.

6. Changes to cash flow and monthly returns

The reverse charge may also mean your business will make net repayment claims to HMRC, as you no longer receive VAT on your sales.

You can apply to move to monthly returns using your online VAT account.

If you are a sub-contractor you should also be aware that your customers will no longer be paying you VAT, which will reduce the gross value of payments coming into your business. So you’ll need to consider and plan for the impact of this on your day-to-day cashflow.

7. Services with reverse charge and normal VAT charging

Supplies where the reverse charge element is a minor part

Normally if any of the services in a supply are subject to the reverse charge, all other services supplied will also be subject to it. However, if the reverse charge part of the supply is 5% or less of the value of the whole supply this can be disregarded (this is referred to the ‘5% disregard’) and normal VAT rules will apply if the customer makes an end user or intermediary supplier notification.

Supply and fix works will be subject to the reverse charge because the services and goods are part of one supply for VAT purposes. For example, a joiner constructing a staircase offsite then installing it onsite, will be making a reverse charge service even if the charge for installation is only a small (subject to the 5% disregard) element of the overall charge.

In addition, if 2 parties have already had a reverse charge service between them on a construction site, for convenience they can both agree that any subsequent construction supplies on that site can be treated as reverse charge services.

If there is doubt whether a type of work falls within the definition of building and construction services, as long as the recipient is VAT registered and the payments are subject to CIS, the reverse charge should apply. You should also check the list of specified services.

Separate contracts for labour and materials

If a customer enters into 2 separate contracts with the same supplier for works within the scope of CIS and the works are to be provided at the same time on the same site, the reverse charge will apply to both contracts (subject to the 5% disregard) as they comprise a single supply for VAT purposes.

Splitting of invoices for supply and fix orders

If a customer places a single supply and fix order within the scope of the CIS with a supplier, the reverse charge will apply to the full value of the order even if the supplier issues separate invoices for the supply and fix elements.

If a customer places 2 separate orders with the same supplier for supply and fix works within the scope of CIS (for example, one order for materials and a second order for labour) and the works are to be provided at the same time and on the same site, the reverse charge will apply to both orders (subject to the 5% disregard) as they comprise a single supply for VAT purposes.

Supply of spares after completion of a supply and fix contract

When a supply and fix contract is completed, and the customer orders spares:

  • if the original contract did not provide for the supply of spares this is a materials-only supply outside the scope of CIS – therefore, normal VAT rules apply and VAT should be charged by the supplier on the sale of spares
  • if the original contract provided for the supply of spares and the original contract is subject to the reverse charge the supply of spares will also be subject to the reverse charge and VAT should not be charged by the supplier on the sale of spares – if the original contract was to an end user the reverse charge will not apply

8. Change of VAT treatment during a contract

There may be contracts where a change in customer circumstances means the VAT treatment changes from the reverse charge to the normal VAT accounting rules or vice-versa.

Where this occurs, the customer must notify the supplier to enable the correct VAT treatment to be applied.

The new treatment will apply at the point the customer’s circumstances changed.

If this change happens during an invoice period (where there would be one invoice including both reverse charge and normal VAT rules), the supplier can decide to change to the new treatment for the entire invoice period or wait until the next invoice period before changing to the new treatment.

9. How to account for the reverse charge

VAT is due when a VAT invoice is issued, or payment is received, whichever is earlier.

For invoices issued for specified supplies that become liable to the reverse charge, the VAT treatment for invoices with a tax point:

  • before 1 March 2021 – the normal VAT rules will apply and you should charge VAT at the appropriate rate on your supplies
  • on or after 1 March 2021 – the domestic reverse charge will apply

Transitional supplies for authenticated tax receipts or self-billed invoices

For authenticated tax receipts or self-billed invoices the tax point is normally the date the supplier receives payment.

The transitional arrangements for how to determine the VAT treatment for payments due on any supplies entered into your accounting system is if the date entered is:

  • before 1 March 2021 and the payment date will be on or before 31 May 2021, use the normal VAT rules
  • before 1 March 2021 and the payment date will be on or after 1 June 2021, use the domestic reverse charge
  • on or after 1 March 2021, you must use the domestic reverse charge

10. Completing your VAT return

VAT on sales

Suppliers must not enter any output tax on sales under the reverse charge. The supplier only needs to enter the net value of the sale.

VAT on purchases

If you buy services subject to the reverse charge, you must enter the VAT charged as output tax on your VAT return. Make sure you do not enter the net value of the purchase as a net sale.

You may reclaim the input tax on your reverse charge purchases, subject to the normal VAT rules.

11. Cash accounting scheme

You cannot use the VAT Cash Accounting Scheme for supplies of services that are subject to the reverse charge.

12. Accounting for payments made or received

Some businesses in the construction sector prefer to account for their VAT on the basis of payments made and received. The reverse charge will bring in the following changes.

Sales

For sales, no VAT will be due on payments from customers where the supply is covered by the reverse charge.

All you need to do is include the value of the sale in your VAT Return when you receive the payment.

If you supply services that are not subject to the reverse charge, for example to private individuals or end users, you must account for VAT on the dates you were paid.

Purchases

If you receive a service subject to the reverse charge from sub-contractors you’ll have to account for the VAT in your VAT Return and recover it simultaneously on the same VAT Return, subject to the normal rules on VAT input tax deduction.

You can account for this on the date you make the payment to your sub-contractor, unless they have issued you with a tax invoice beforehand, in which case you should account for the VAT using the date of the invoice.

13. Flat rate scheme

Reverse charge supplies are not to be accounted for under the scheme. Flat Rate Scheme users who receive reverse charge supplies will have to account for the VAT due to HMRC and recover it simultaneously on the same VAT Return.

Users of the Flat Rate Scheme will have to consider if it’s still beneficial to them bearing in mind that under the scheme they cannot recover VAT incurred on purchases of materials, overheads and so on.

14. Invoices and other VAT documents

Invoices

When supplying a service subject to the domestic reverse charge, suppliers must:

  • show all the information required on a VAT invoice
  • make a note on the invoice to make it clear that the domestic reverse charge applies and that the customer is required to account for the VAT
  • clearly state how much VAT is due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown, but the VAT should not be included in the amount charged to the customer

The VAT regulations 1995 say invoices for services subject to the reverse charge must include the reference ‘reverse charge’. Here are some examples of wording that meet the legal requirement:

  • reverse charge: VAT Act 1994 Section 55A applies
  • reverse charge: S55A VATA 94 applies
  • reverse charge: Customer to pay the VAT to HMRC

Invoice example (PDF, 98.2KB, 1 page)

If your accounting software cannot show the reverse charge

If your software cannot show the amount of VAT to account for under reverse charge, you must:

  • state that the VAT is to be accounted by the customer
  • add wording to the invoice to say ‘customer to account to HMRC’ for the reverse charge
  • make sure customer can identify reverse charge goods or services

15. Credit notes and adjustments

Adjustments in the course of business

If a supplier allows a credit to a customer who can reclaim all the tax on their supply as input tax, you do not have to adjust the original VAT charge as long as both the supplier and customer agree not to do so. If these conditions are met this concession can also apply to reverse charge supplies.

Otherwise, the following adjustments will need to be made:

Suppliers

Issue a credit note to the customer with a note on it to show that the reverse charge applies and showing the reduction in the VAT the customer has to pay to HMRC.

Here are some examples of wording you can use for credit notes:

  • reverse charge: customer to account for the output tax adjustment of £X to HMRC
  • reverse charge: UK customer to account for the output tax adjustment of £X to HMRC
  • customer to account to HMRC for the adjustment to reverse charge output tax on the VAT exclusive price of items marked reverse charge (use this if the VAT amount cannot be shown)

Include the reduction in the value of the supply on the VAT Return for the period in which the credit note is issued.

Customers

Adjust the amount of output VAT due (as shown on the supplier’s credit note) by reducing the total VAT due in the VAT Return for the period in which the credit note was issued.

Adjust the amount of input VAT in the same VAT Return, in accordance with any input tax adjustment calculations that apply (for example partial exemption methods).

Include the reduction in the value of the supply in the VAT Return for the period in which the credit note is issued.

If the original supply was accounted for under a self-billing or authenticated receipts system then it will be for the customer rather than the supplier to generate the credit note, but otherwise the same procedure will apply.

If you’ve not submitted your VAT Return

If you identify a change in the value of reverse charge services before your accounting period is closed, you can adjust your primary records of the sale or purchase and make sure the corrected figure feeds through to the VAT account.

Credit notes spanning the transition period

With the introduction of the reverse charge on 1 March 2021, if a supplier issues a credit note to reduce the value of, or cancel, an invoice issued before 1 March 2021 the VAT procedures set out in the following scenarios will apply.

Scenario 1

Where a sales invoice is issued before 1 March 2021 with 20% VAT and a credit note is issued on or after 1 March 2021 to reduce the value of the supply, then if:

  • both parties are fully taxable (for instance, can recover in full VAT incurred on purchases) and agree the credit note may be issued without a VAT adjustment
  • either of the parties is not fully taxable or the parties want to adjust the VAT previously charged, the credit note should be issued with 20% VAT – this should be done using normal VAT accounting procedures rather than the reverse charge procedure

Scenario 2

Where a sales invoice is issued before 1 March 2021 with 20% VAT, a credit note is issued on or after 1 March 2021 for the full value of the invoice and a new invoice issued for the amount now chargeable. The credit note should then be issued with 20% VAT (normal VAT accounting procedure) and the new invoice should be subject to the reverse charge.

16. New build housing

The reverse charge does not apply to standard rated items which are included in a zero-rated supply of building and construction services, for example the supply and incorporation of ovens and hobs.

If you supply only standard rated services for new build housing, the reverse charge will apply, however if your customer is an end user, the reverse charge will not apply and you should use the normal VAT rules.

See VAT Notice 708 (buildings and construction) for more information.

Supply and fix of goods not ordinarily incorporated in new build housing

The standard rate of VAT is due on the value of goods not ordinarily incorporated in new build housing.

When these goods are supplied and installed in new build housing, the reverse charge does not apply and standard rate VAT should be charged.

Scaffolding provided on new build housing developments

A contract for the hire, erection and dismantling of scaffolding is within the scope of CIS. If the scaffold supplier’s invoice shows separate charges for the hire of scaffold and the cost of the labour to erect and dismantle it:

  • the labour element will be VAT zero-rated (as a service carried out in connection with the construction of new build housing)
  • the reverse charge will apply to the charge for the hire of the scaffold, unless the customer is an end user
  • charges for on-going hire of scaffold under a contract for the hire, erection and dismantling of the scaffold will be within CIS and also be subject to the reverse charge, unless the customer is an end user

If the scaffold supplier’s invoice shows a single charge for the hire of scaffold and labour, the full value of the supply is subject to the reverse charge, unless the customer is an end user.

The hire, erection and dismantling of scaffolding on developments other than new build housing will be subject to the reverse charge if all the other conditions are met.

Hire of plant or machinery with an operator used on new build housing developments

The supply of operated plant or machinery used on new build housing developments is zero-rated and not subject to the reverse charge.

Supply and fix of goods not ordinarily incorporated in residential conversions and refurbishments

Building and construction services may be liable to the reduced rate of VAT if the:

  • refurbishment or renovation of residential premises has been empty for more than 2 years
  • conversion of premises from non-residential to residential use; and works that result in a change to the number of dwellings in a building

The standard rate of VAT is due on the supply and fix of goods not ordinarily incorporated in residential conversions and refurbishments, and the reverse charge applies. However, if your customer is an end-user, normal VAT rules apply.

17. Goods on hire only

The hire of goods only is not within the scope of CIS and therefore the reverse charge does not apply to the hire charge.

18. Reverse charge treatment for utilities

Supplies of construction services to utility businesses are likely to be outside the scope of the reverse charge because they’re the construction, repair or alteration of the utility company’s physical assets. Therefore, although they’re CIS registered the end user exclusion will apply.

Services provided by utility businesses which do not fall within the domestic reverse charge include the:

  • provision of a connection to a utility network, or diversionary works to allow the relocation of the network
  • development and construction of a private network to be owned by the utility and leased or sold to the customer
  • installation of a boiler (and ancillary supplies)

Exceptions to this will be when a utility company takes on the role of contractor for particular projects such as:

  • constructing, repairing or maintaining a private power or gas network for a customer
  • installing full heating systems

Energy Company Obligation funding

Utility companies may meet their Energy Company Obligation funding obligations by:

  • only funding the activity
  • making a supply to the customer for no payment
  • making a supply to the customer for a payment

Only making a supply for payment is a supply for VAT purposes, so may be subject to the reverse charge if specified supplies are being provided and the other conditions are met.

Utility companies are defined as:

  • a supplier of gas, electricity, water or telephone services to homes and businesses, or a business (including the corporate group) that supplies such services
  • likely to be regulated or working under legislation administered by Ofgem, Ofwat or Ofcom

19. Local authorities and other public bodies

The end user exclusion will usually apply to supplies to public bodies.

Most supplies will either be:

  • related to works to the public body’s property and land
  • provided to the public body so it can discharge its responsibilities under a special legal regime

If the public body is acting on a commercial basis, and selling on the construction service, the end user exclusion will not apply. The public body will receive a reverse charge supply and have to account for the VAT to HMRC. It will also have to establish the end user status of its customer.

20. Planning gain agreements

Developers may provide many other types of goods and services free, or for a nominal charge, to the local authority or other authority under section 106 of the Town and Country Planning Act 1990 or similar agreements.

These agreements are sometimes described as planning gain agreements.

Any provision of such goods and services by the developer pursuant to a planning gain agreement is not a supply for consideration and so no VAT is chargeable on that supply. Therefore, the developer is not making onward supplies of construction services under the agreement and can opt to be an end user for reverse charge purposes if the end user conditions are met.

21. Private finance initiative arrangements

The Private Finance Initiative (PFI) is a form of Public Private Partnership (PPP). The initiative enables public and private sectors to work more closely together by making use of private capital and expertise in the provision of public sector infrastructure and services. PFI and PPP agreements between a private company and a public body are often for long periods, typically 20 to 30 years.

The PFI and PPP agreement will usually provide for the private company to provide a fully maintained asset in return for payment of a unitary charge based on availability, as well as providing ad-hoc services to the public body upon request.

Unitary charge payments made by a public body under a PFI and PPP agreement are not treated as payments for a supply of building and construction services. The private company is not supplying building and construction services to the public body and so is the end user of those services for the purpose of the reverse charge. All supplies of specified services to the private company are subject to normal VAT rules and VAT should be charged at the appropriate rate.

If there is a separate agreement or contract between the public body and the private company for the supply of ad-hoc services the reverse charge will:

  • not apply to supplies by the private company to the public body (because the public body is the end user)
  • apply to supplies of specified services to the private company because there is an onward supply of those specified services to the public body

22. Sale and leaseback arrangements

Under sale and leaseback arrangements, a private company takes an interest in land, constructs buildings on the site and then leases the completed buildings back to the land owner. The private company is the end user for reverse charge purposes. Therefore, normal VAT rules apply to supplies of specified building and construction services to the private company.

23. Joint ventures

The intermediary supplier exception applies to supplies of building and construction services made to an entity which is not the end user of those services but is ‘connected’ with the end user or who, when taken together with the end user, has a relevant interest in land.

Connected’ means that one party must be a ‘group undertaking’ of the other party, as defined in section 1161 of the Companies Act 2006.

Landlords, lessors, licensors, tenants, lessees or licensees and any persons ‘connected’ to them have a relevant interest in land. Having an agreement for lease is also a relevant interest in land. However, having a relevant interest in land does not include temporary rights to occupy land solely to carry out building and construction services.

There are different types of joint ventures and you need to determine the type in order to determine whether that joint venture is an undertaking pursuant to section 1161 of the Companies Act 2006 and whether that joint venture can be a connected party.

Unincorporated Joint Ventures or Joint Arrangement Non-entities (JANE)

The parties to the unincorporated joint venture or JANEs make different contributions through their existing structures to create a business venture or achieve a common objective. There is typically an agreement detailing the rights and obligations to each other and third parties. Profits and losses flow directly to the parties of the joint venture arrangement.

Unincorporated joint ventures or JANEs do not meet the conditions of an ‘undertaking’ or ‘group undertaking’ in section 1161 of the Companies Act 2006 and so cannot be a connected party to an end user for the purpose of the reverse charge, unless the joint venture gives rise to a general partnership in accordance with the Partnership Act 1890.

An unincorporated joint venture or JANE may be an end user. For example, co-owners of land who are treated as a single person for VAT purposes.

Companies or corporations

A company or corporation is normally a private limited liability company or a company limited by guarantee.

A company or corporation can be an end user or connected with an end user for the purposes of the intermediary supplier exception provided that the conditions of section 1161 of the Companies Act 2006 are met.

Limited Liability Partnership (LLP) incorporated under the Limited Liability Partnerships Act 2000.

An LLP is a body corporate with legal personality separate from that of its members. An LLP can be an end user or connected with an end user for the purposes of the intermediary supplier exception provided that the conditions of section 1161 of the Companies Act 2006 are met.

A Limited Partnership (LP) formed under the Limited Partnership Act 1907

A limited partnership consists of one or more:

  • persons (general partners), who are liable for all debts and obligations of the firm
  • persons (limited partners), who contribute a sum or sums of money as capital, or property valued at a stated amount

Limited partners are not able to take part in the management and running of the partnership business. Only general partners make supplies for VAT purposes. A general partner can be an individual or a body corporate.

A general partner that is a body a corporate can be an end user or connected with an end user for the purposes of the intermediary supplier exception provided that the conditions of section 1161 of the Companies Act 2006 are met.

Where there are 2 or more general partners those general partners are treated like a general partnership for VAT purposes and can be an end user or connected with an end user for the purposes of the intermediary supplier exception provided that the conditions of section 1161 of the Companies Act 2006 are met.

A general partnership under the Partnership Act 1890

A partnership consists of 2 or more persons and is defined as ‘the relation which subsists between persons carrying on a business in common with a view to profit’.

A general partnership can be an end user or connected for the purposes of the intermediary supplier exception provided that the conditions of section 1161 of the Companies Act 2006 are met.

24. Non-established taxable persons

A non-established taxable person is a person who:

  • is not normally resident in the UK
  • does not have a UK establishment
  • is not incorporated in the UK, if it’s a company

When a non-established taxable person makes any taxable supplies in the UK they must:

  • register for VAT in the UK
  • account for UK VAT to HMRC

Where a non-established taxable person makes supplies of construction services to a person belonging in the UK who is registered for UK VAT, it’s the customer who must account for the VAT. This is referred to as the reverse charge for supplies received from outside the UK.

Non-established taxable persons making construction supplies to a customer that does not belong in the UK

If the customer is not VAT registered in the UK then normal VAT rules will apply.

If the customer is registered for UK VAT and the supply is within CIS then the domestic reverse charge will apply.

NETPs receiving construction supplies from UK suppliers

If the NETP is registered for UK VAT and fulfils the conditions to be an end user or intermediary supplier, the reverse charge will not apply provided the NETP notifies the UK supplier it’s an end user or intermediary supplier in writing.

If the NETP is registered for UK VAT and is not an end user or intermediary supplier the reverse charge will apply. The NETP will have to account for VAT on the UK VAT return.

25. Flowcharts

If you sell building and construction services

Use this flowchart to help you decide if you need to use the reverse charge. The reverse charge will need to be used when:

  • your customer is registered for VAT in the UK
  • payment for the supply is reported within the Construction Industry Scheme (CIS)
  • the services you supply are standard or reduced rated
  • you’re not an employment business supplying either staff or workers, or both
  • your customer has not given written confirmation that they’re an end user or intermediary supplier

Suppliers flowchart (PDF, 149KB, 1 page)

If you buy building and construction services

Use this flowchart to help you decide if you need to use the reverse charge. The reverse charge will need to be used when:

  • payment for the supply is reported within the Construction Industry Scheme (CIS)
  • the supply is standard or reduced rated
  • are not hiring either staff or workers, or both
  • you’re not using the end user or intermediary exclusions

Buyers flowchart (PDF, 139KB, 2 pages)

Published 24 September 2020