VAT reverse charge for construction services

Legislation for the implementation of a VAT reverse charge on supplies of construction services from 01 October 2019 has been published.

The legislation to introduce a reverse charge on certain supplies of construction services with effect from 01 October 2019 has been enacted. The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019 (SI 2019/892) will, in general terms, introduce a VAT reverse charge on supplies of construction services to which the provisions of the Construction Industry Scheme (CIS) also apply. However, since the purpose of the legislation is to prevent missing trader fraud opportunities within the construction industry, the legislation includes a number of exceptions for low risk situations, such as where the supply is made to the final consumer.

The new rules will affect a large number of businesses, hence the long lead time for the legislation. Whilst the additional complexity will provide an additional administrative burden for businesses, it is to be welcomed that the final form of the rules has closely tied its application to the operation of the CIS rules.


The Government announced in the Autumn Budget 2017 that it intended to apply the reverse charge rules to supplies of construction services to combat “missing trader fraud”. Construction services have been targeted because supplies with a high labour content do not incur any significant VAT on their costs. Therefore, fraudsters can receive high net amounts of VAT from their customers and then go missing, keeping the VAT for themselves.

Draft legislation was released in June 2018 as part of a technical consultation. The final form of the legislation has now been enacted with a number of changes to the June 2018 draft. In particular, the rules now directly link the reverse charge to construction services also covered by the CIS, which is designed to tackle the risk of direct tax fraud in the construction industry. As the Government considers that the risk of fraud in the construction industry is principally centred on the supply of construction services between construction businesses in the supply chain, the rules continue to exclude supplies to end user businesses or between landlord and tenant, for example.

Operation of the reverse charge

Under the reverse charge measure, the VAT on certain supplies of construction services (“specified services”) will need to be accounted for to HMRC by the customer rather than the supplier. The intention of the legislation is that, in general, the reverse charge will apply to construction services which are also required to be reported through CIS .The reverse charge will apply throughout the supply chain up to the point where the customer receiving the supply is no longer a business that makes onward supplies of specified services. The reverse charge will also apply to goods where those goods are supplied with the construction services.

The rules define “construction services” as covering a wide range of services including construction, alteration, repair, extension, demolition of buildings, structures or works forming part of land , installation of systems of heating, lighting, air-conditioning, power, drainage etc, internal cleaning when carried out in the course of other construction works, painting or decorating and other services integral or preparatory to such services. The definition is based on the definition of “construction operations” used in the CIS.

The legislation also includes a list of excluded services such as the professional work of architects, manufacturing building components and installation of security systems (unless they form a single supply with other construction services).
Article 8 of the Order lists certain “excepted supplies”. These include:

  • supplies where a payment is not required to be included in a return made under the CIS
  • supplies of specified services to an end user, and
  • supplies to an intermediary where either the intermediary is connected with the expected end user of those services or the supplies are made in relation to land, buildings or civil engineering works in which both the intermediary supplier and the expected end user of those services have a relevant interest (such as landlords and tenants).

Where a supply includes more than one “identifiable element”, the supply will not be an excepted supply unless all of those elements, if supplied separately, would be excepted supplies.

Where a supply is an excepted supply, the normal VAT accounting rules will apply. However, because suppliers may be unaware they are supplying an end user, it will be up to the end user to make the supplier aware that they are an end user and that VAT should be charged in the normal way instead of being reverse charged. HMRC draft guidance indicates that this should be in a written form that is clearly understood and can be retained for future reference.

Finally, in order to minimise the impact on the smallest businesses, provision has also been made in the SI to modify the effect of the normal rule that a reverse charge supply is to be treated as a supply made by the recipient for the purposes of the VAT registration limits. For construction services, the aggregation rule in VATA 1994 s.55A(3) will not apply.


The Government recognises that the impact on business is potentially significant for those supplying construction services. Indeed, it is estimated that up to 150,000 businesses could be required to use it on supplies they make or receive.

However, only businesses that receive supplies where payments are reported through the CIS will have to apply the reverse charge and in most cases such businesses should have the administrative capabilities to operate the new rules.

Finally, it should be noted that where a non-construction business falls within the scope of the CIS because of the high value of its purchases of construction services, it may nevertheless come within the “end user” exception so that it will not have to apply the new reverse charge provisions.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.