VAT Reverse Charge

VAT Reverse Charge Technical Guide

VAT Reverse Charge

Technical Guide for VAT Reverse Charge

Orignal Article: VAT reverse charge technical guide

If you are in to buying and selling of construction services this technical information guide about VAT reverse charge.

This guide will help the people who buy and sell services in the Construction Industry Scheme.

1. End Users and Intermediary Supplier Businesses

End Users

In this guide we call ‘Final Customers’ or ‘Consumers’ the end user for reverse charge purpose. These are business or groups of businesses who register for VAT and Construction Industry Scheme but do not make onward supplies of the building and construction services supplied to them.

End Users can inform their suppliers or building contractor in writing that they are the end users therefore the reverse charge does not apply to the supplies they purchase.

Intermediary Suppliers

Under the VAT and Construction Industry Scheme, reverse charge does not apply to business registered as intermediary suppliers who buy construction services and re-supply, making no alterations before supplying to the end users. The policy also treats them as end users.

To provide services to the end user, the 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.

When intermediary suppliers notify to their suppliers or building contractors in writing that they are intermediary supplier reverse charge is not applicable. Intermediary suppliers can refer to themselves as end users.

Design and Build Companies as Intermediary Suppliers

The Design and Build Company buys services from multiple suppliers and provides them as one to the client, under the design and build contract.

For the intermediary suppliers, if they meet the conditions and do not make changes or processing of services, the customer should treat the design and build company will as an intermediary supplier of building and construction services. This includes supplies such as scaffolding, which are important to design and build.

Normal VAT rules apply to the design and build company for being directly connected to the client. One cannot refer to the design and build company as an intermediary supplier if they have no connection with the client directly. Therefore, the reverse charge will apply to the construction services bought in for onward supply.

Written Notification

They can share notification of end users or intermediary status by:

  • Registered Mail or On Paper.
  • Email or FAX.
  • Mentioning it in the contract.

The written notifications are to be kept as business records and should clearly state what supplies the intermediary supplier covers in the notification. The intermediary supplier can specify supplies under the contact or it can be a Heads of Agreement or call-off type contract for supplies that are to be made in the future.

When the end user or intermediary supplier notification becomes a part of the contract issued by the supplier, the notification becomes valid as long as the customer has given written agreement to the contract.

If a customer changes form, from an end user to an intermediary supplier or intermediary supplier to an end user, there no need of re-issue of notification.

The customer will be liable for accounting for the VAT if the written notification is not as per specification. The person making the notification should know the correct format. A sample of which is given below:

‘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.’

In order to qualify as an end user or intermediary supplier, the customer must issue a written notification to their supplier or contractor to avoid reverse charge. If the customer does not submit a written notification, 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

Normal VAT should apply, where sales operations or networks are targeting the domestic consumer sales. It’s not mandatory to check the VAT, CIS or end user status of the customer.

If the customer is an end user or not, to clear any doubts one should always ask the customer whether they’re registered for VAT and CIS.

If a company deals with end users or intermediary suppliers frequently, they should include a statement in their terms and conditions that they will assume that the customer is an end user or intermediary supplier unless they say they’re not. This shifts the responsibility on the customer to respond if this not the case.

3. Employment businesses supplying construction workers

The purpose of the reverse charge is different for employment businesses. Reverse charge is not applicable to the supplies supplied by the employment businesses. Even if those supplies fall under CIS scope.

Supplying construction workers does not fall under building and construction services, supplying staff is subject to VAT.

The employer supplies the workers, this activity is subject to VAT. The employment business can provide the supply of the workers to the other individuals for VAT purposes are:

  • Employment business contractually employs or otherwise engages workers
  • A director of the employment business

Joint venture projects can have very similar situation where the customer makes payments to each company separately. The customer pays employment business for their staff not for the construction services therefor they will be no reverse charge.

4. Labour only sub-contractors

The labour only sub-contractors are subject to reverse charge. They are only responsible for the work carried out, therefore the reverse charge applies to them. This applies if follow are the services:

  • Standard Rated.
  • Reduce Rated.
  • Within CIS Scope.

Supply of staff does not fall under reverse charge whereas labour only construction services fall under reverse charge. How to differentiate the supply is:

  • Labour only construction services—the completion of work carried out by the workers is the responsibility of the business supplying labour.
  • Staff—the completion of the work carried out by the workers will be the responsibility of the customer.
Difference between Employment Businesses and Labour Only Sub-Contractors

If the supplies meet all the conditions of the Construction Industry Scheme Scope, the supplies by the by labour only sub-contractors are subject to the reverse charge.

Even If the supplies meet all the conditions of the Construction Industry Scheme Scope, but the employment business supplies them, they are not subject to the reverse charge.

One should treat the supplying business as an employment business, under the following conditions:

  • The customer hires the employment business with X number of workers for Y number of days.
  • The employment business hires the workers.
  • The employment business pays the workers as an hourly or daily rate.
  • The employment business maintains a timesheet for the record of hours and days worked.
  • The customer acknowledges and signs the hours and days worked timesheet for employment business.
  • The customer makes the payment to the employment business.
  • The customer’s site supervisor or managers directly manage the work carried out by the workers.
  • The work carried out the on the site is solely the responsibility of the customer.

One should treat the supplying business as a labour only sub-contractor, under the following conditions:

  • The customer hires the business for skilled labour to carry out specific services such as bricklaying, electrical wiring or plumbing job.
  • The business employs or engages the labourers.
  • The business provides the prices for the works or charges at a measured rate per square meter.
  • The labourer's work is the responsibility of the business.
  • The correction of defects is also the responsibility of the business.
  • The customer or his representative makes payments based on the number of tasks completed till date.

VAT is not applicable to such invoices, reverse charge applies to these services supplied by the business.

5. How the domestic reverse charge will affect you

There may be difficulties when implementing reverse charge and HMRC completely understands that. They will deal with errors with light touch that made in the first six months of the new legislation. As long as one is trying to comply with the new legislation and have good faith.

Recovering or Correcting the errors can become difficult if the under declared or overcharged sums remain outstanding for a longer period. One should correct the errors as soon as they identify them.

If one is deliberately trying to take advantage of the measure by not accounting them correctly, the HMRC officer can impose penalties even during the light touch period.

6. Changes to cash flow and monthly returns

Your business will make net repayment claims to HMRC because of the reverse charge due to you are no longer receiving VAT on your sales.

Through Online VAT account, one can move to monthly returns.

One should be aware as a sub-contractor that the customers will not be paying VAT anymore, which will reduce the gross value of the payments coming into their business. This will affect your day-to-day cash-flow, so one needs to consider this beforehand.

7. Services with reverse charge and normal VAT charging

Supplies where the reverse charge element is a minor part

Reverse charge will apply to all services in a supply if one or more services are subject to reverse charge. Normal VAT will apply if the supply that falls under reverse charge is 5% or less of the total services supplied, if the customer makes an end user or intermediary supplier notification. They refer to this rule as the 5% Disregard.

The supply and fix works will be subject to the reverse charge because services and goods supplied together for VAT purposes. For instance, a business constructs a staircase offsite and installs onsite. They will call this as a reverse charge service even if the charges of installation are tiny based on the overall charge.

If both parties have already agreed or have already had a reverse charge service between them on the construction site, they both can also agree for additional construction supplies to be treated as reverse charge services.

There can be confusion about whether a type of work falls under the definition of building and construction services or not. As long as the recipient is VAT registered and the payments are subject to CIS, the reverse charge applies. You can also check the list of specified services.

Separate contracts for labour and materials

Contracts will be subject to reverse charge where a customer enters into two separate contracts for works with same the supplier for the same site within the CSI Scope. For VAT purpose they comprise a single supply, this will also be subject to 5% disregard.

Splitting of invoices for supply and fix orders

The reverse charge will apply on the full value of the order, when a customer places a single supply and fix order with the supplier within the CIS Scope, even if the supplier issues two separate invoices for the supplies and fix-elements by the supplier.

Reverse charge will also apply on both orders, if the customer places 2 different orders with the same supplier for supply and fix works within the CIS Scope i.e., one order for materials and second order for labour, and that too for the same site and work to be done at the same time.

Supply of spares after completion of a supply and fix contract

If the customer orders spare after the completion of the supply and fix contract is completed:

  • Normal VAT rules will apply if the original contract between the customer and supplier contains materials-only supply without spares and it is outside the CIS Scope. Sales of spare will also be subject to VAT and the supplier should charge it.
  • Reverse charge rule will apply if the original contract provides the supply of spares and the original contract is subject to reverse charge. VAT rules will not apply in this scenario. If the original contract was to an end user, the reverse charge will not apply.

8. Change of VAT treatment during a contract

There can be circumstances with the customers where the VAT treatment changes from normal VAT accounting to the reverse charge or vice versa.

When this situation arises, it is the duty of the customer to notify the supplier for him to use the correct VAT treatment.

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

If the change in circumstances happens during the invoice period, where there would be one invoice, including both reverse charge and normal VAT rules. The supplier has the choice to decide on the new treatment for the entire invoice period or wait until the next invoice period before making a change.

9. How to account for the reverse charge

VAT becomes payable, at the time of issue of VAT Invoice or when you receive payment, whichever is earlier.

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

  • Prior to 1st March 2021: The normal VAT rules will apply and it should be charged at the appropriate rate on the supplies.
  • On or After 1st 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:

  • Use of normal VAT Rules, if the date is before 1st March 2021 and the payment date will be on or before 31st May 2021.
  • Use of Domestic Reverse Charge, if the date is before 1st March 2021 and the payment date will be on or after 1st June 2021.
  • Use of Domestic Reverse Charge is must, on or after 1st March 2021.

10. Completing your VAT return

VAT on sales

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

VAT on purchases

You must enter the VAT charged as the output tax on your VAT returns, if the services you buy are subject to the reverse charge. Please ensure you do not enter the net value of the purchase as a net sale.

With the Normal VAT rules, you may reclaim the input tax on your reverse charge purchases.

11. Cash accounting scheme

The supplies of services that are subject to the reverse charge, one cannot use the VAT Cash Accounting Scheme

12. Accounting for payments made or received

Sales

When the supply fall under the reverse charge, no VAT will be due on payment from the customer in the case of sales.

When you receive a payment, just include the value of the sale in your VAT return.

For the 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 receive the payment.

Purchases

In your VAT Returns you will have to account for the services you receive from the sub-contractors if the services are subject to the reverse charge and recover it on the same VAT Return. These are the rules based on normal VAT input tax deduction.

The date you make your payment to the sub-contractor is the date they account you for, unless the supplier issues you a tax invoice beforehand. In that case, use the issue date of the invoice for the account of VAT.

13. Flat rate scheme

You should not account for the reverse charge supplies under the flat rate scheme. Users who receive the reverse charge supplies will have to account for the VAT as per HMRC and recover on the same VAT Return.

Users of the Flat Rate Scheme cannot recover VAT incurred on purchases of materials, overheads and so on. They will have to consider whether it will be beneficial to them.

14. Invoices and other VAT documents

Invoices

Where the domestic reverse charge applies to supplying a service, the supplier must:

  • All required information should be present on the VAT Invoice.
  • Clearly stating on the invoice that the domestic reverse charge applies, and the customer must account for the VAT.
  • Mention the amount of VAT that is due under the reverse charge. If the supplier cannot mention the amount, he should mention the rate of VAT. The amount charged to the customer should not include VAT.

The invoices that are subject to reverse charge must include the reference ‘reverse charge’ under the VAT Regulations 1995. Some of the wording that fulfil the legal requirements are below:

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

Sample Invoice (Downloadable PDF File)

If your accounting software cannot show the reverse charge

Because of the limitation of your accounting software, if you cannot show the VAT Amount to account for the reverse charge, you must:

  • Clearly state that the customer to be accounted for the VAT.
  • For the reverse charge in the invoice, include words like ‘customer to account to HMRC’.
  • Also ensure that customer can identify the reverse charge goods or services.

15. Credit notes and adjustments

Adjustments in the course of business

The customers who can reclaim all the tax on their supply as input tax and the supplier allows them a credit, there is no need to adjust the original VAT charge as long as both the parties agree not to do so. Under these conditions, this concession can also apply to the reverse charge supplies.

Else they should make the following adjustments:

Suppliers

The supplier will issue a credit note to the customer, where it states that the reverse charge applies along with showing the reduction in the VAT, which the customer has to pay to HMRC.

Below are some examples one can use in their 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).

The VAT Return should include the reduction in the value of the supply, for the period in which they have issued the credit note.

Customers

The customer needs to adjust the amount of the output VAT due (as per the supplier’s credit note) by subtracting the total VAT due in the VAT Return of that period similar to the issue period of the credit note.

Adjust of the amount of the input VAT in the same VAT Return according to any input tax adjustment calculations that may apply (for example partial exemption methods).

The VAT returns must include the reduction in the value of the supply, similar to the issue period of the credit note.

Under the self-billing or authenticated receipts system for the original supply, it will be the customer instead of the supplier to issue the credit, but all other procedures will remain the same.

If you’ve not submitted your VAT Return

Before the close of your accounting period, if you identify a change in value of the reverse charge services, you can adjust your primary records of the sales and purchases to ensure that you provide correct figures in your VAT account.

Credit notes spanning the transition period

On 1st March 2021, with the introduction of the reverse charge, when a supplier issues a credit note to reduce the value of, or cancel, an invoice issued before 1st March 2021. The following VAT procedures scenarios set out will apply:

Scenario 1

If a sales invoice is issued before 1st March 2021 with 20% VAT and a credit note is issued on or after 1st 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 1st March 2021 with 20% VAT, a credit note is issued on or after 1st 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

In the building and construction services, standard rated items are not subject to reverse charge, which are part of zero-rated supply. For example, the supply and incorporation of ovens and hobs.

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

For more information see VAT Notice 708 (buildings and construction)

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

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

You should charge standard rate VAT, when you supply and install these goods in a new build housing. The reverse charge is not applicable here.

Scaffolding provided on new build housing developments

Hire, erection and dismantling of scaffolding contract is part of the CIS Scope. In the scaffold supplier’s invoice, if he shows separate charges for the hire of scaffold and the cost of the labour to erect and dismantle it:

  • The labour part of the invoice will be VAT zero-rated (as a service carried out in connection with the construction of new build housing).
  • If the customer is not an end user, the reverse charge will apply to the charge for the hire of the scaffold.
  • If the customer is not an end user, the charges for ongoing hire of scaffold under a contract for the hire, erection and dismantling of the scaffold will be within CIS Scope and also be subject to the reverse charge.

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

Reverse charge will apply on the hire, erection and dismantling of scaffolding on developments other than new build housing, if it meets all other conditions.

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 therefore, the reverse charge does not apply.

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

A reduced rate of VAT may apply on building and construction services, if the:

  • If the residential premise has been vacant for over 2 years, the refurbishment or renovation may be the subject to reduced rate.
  • Converting a premise from non-residential to residential use and works that result in a change to the number of dwellings in a building.

The reverse charge applies with the standard rate of VAT on the supply and fix of goods not ordinarily incorporated in residential conversions and refurbishments. Normal VAT Rules apply if the customer is an end user.

17. Goods on hire only

The hire of goods only is not part of CIS Scope therefore, the reverse charge does not apply to the hire charge.

18. Reverse charge treatment for utilities

Provision of construction services to the utility businesses is likely to be outside the scope of the reverse charge because of the construction, repair or alteration of the utility company’s physical assets. Although they are CIS Registered but the end user exclusion will apply.

The domestic reverse charge does not apply on the following services provided by utility businesses:

  • Providing a new connection to a utility network, or diversionary works to allow the relocation of the network.
  • A utility company develops and constructs a private network and later lease or sell it 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:

  • Underwriting the funds for the proceedings.
  • No charge to the customer for supply of services.
  • Proceeding of the payment from the customer in exchange of supply of services.

For VAT purposes, the company only makes a supply for payment and reverse charge will apply as well, if the supplies are part of CIS Scope and meeting other conditions.

Utility companies are defined as:

  • Companies that provide services such as a supplier of gas, electricity, water or telephone services to homes and businesses, or a business (including the corporate group).
  • Organizations that are regulated or work under the legislation administered by Ofgem, Ofwat or Ofcom.

19. Local authorities and other public bodies

The end user terminology does not apply to supply to public bodies.

Most supplies will either be:

  • Public body’s property and land related to works.
  • Supplies provided to the public body, so they can shift their responsibilities under a special legal regime.

If the public body is providing services commercially and selling the construction services, one cannot treat them as an end user. The supplies provided to the public body will be subject to reverse charge and they will have to account for the VAT to HMRC. The public body will also have to establish the status of its customer as the end user.

20. Planning gain agreements

The Developers may provide many other types goods and services for a nominal or no charge to the local authorities or other authorities under the section 106 of the Town and Country Planning Act 1990 or similar agreements.

We can also describe these agreements as planning gain agreements.

VAT is not chargeable on any provision of such goods and services by the developer, who is following a planning gain agreement and it is not a supply for consideration. The developer is not making onward supplies of construction services under the agreement and he can opt to be an end user for reverse charge purposes, if they meet the end user conditions.

21. Private finance initiative arrangements

One form of Public Private Partnership (PPP) is Private Finance Initiative (PFI). For the provision of public sector infrastructure and services, the public and private sectors take initiatives to work closely together with the private capital and expertise. These PFI and PPP agreements between the public body and private company are for long term, usually 20 to 30 years.

Upon the request of the public body, the private company provides a fully maintained asset in return for payment of a unitary charge depending on the availability or provides ad-hoc services under the PFI and PPP agreement.

Under the PFI and PPP agreement, the unitary charge payments that the public body makes, one cannot treat them as payments for a supply of building and construction services. The private company is not supplying building and construction services to the public body therefore, they become the end user of the services for the purpose of the reverse charge. Normal VAT rules and with appropriate rate will apply to the all the supplies of specified services to the private company.

For the supply of ad-hoc services, if the public body and the private company have a separate agreement or contract between them, the reverse charge will:

  • As the public is an end user, the reverse charge will not apply to the supplies the private company provides to the public body.
  • The reverse charge will apply to the supplies of specified services to the private company because they are making an onward supply of those services to the public body.

22. 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 landowner. We call these agreements as sale and leaseback arrangements. For the purpose of the reverse charge, the end user here will be the private company. The supplies of specified building and construction services to the private company will be subject to normal VAT rules.

23. Joint ventures

The exemption of the intermediary supplier applies to supplies of building and construction services, which they provide to an entity that is not an end user but is ‘connected’ with the end user. The end user here has a relevant interest in land and part of the venture.

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

People ‘connected’ to them have a relevant interest in land can be landlords, lessors, licensors, tenants, lessees or licensees. Having an agreement for lease is also a relevant interest in land. However, temporary rights to occupy land solely to carry out building and construction services, they will not consider for having a relevant interest in land.

In section 1161 of the Companies Act 2006, there are different joint ventures types, you need to define the right type of the joint venture, also ensure whether the joint venture can be a connected party.

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

To create a business venture or to achieve a common goal, the parties of the unincorporated joint venture or JANEs make unique contributions through their own existing structures. They defined the rights and obligations of each party, including third parties, under an agreement. The joint venture arrangement allows the profit and losses to flow directly to the parties.

For the reverse charge purpose, the 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, there can be exception if the joint venture gives rise to a general partnership under the Partnership Act 1890.

The end user definition may apply to an unincorporated joint venture or JANE. For example, for VAT purpose, treating the co-owners of land as a single person.

Companies or corporations

A private limited liability company or a company limited by guarantee, we call them a company or a corporation.

As per the conditions set in section 1161 of the Companies Act 2006, a company or corporation can be an end user or connected with an end user for the purpose of intermediary supplier exception. That is, if they meet all the conditions.

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. If they meet the conditions set in section 1161 of the Companies Act 2006, they can be an end user or connected with an end user for the purposes of the intermediary supplier exception.

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

It can be a limited partnership if one or more:

  • persons (general partners), who take the responsibility 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.

Partnership business does not allow limited partners to take part in the management or running of the business. Only general partners make supplies for VAT purposes. An individual or a body corporate can be a general partner.

As per the conditions that set in the section 1161 of the Companies Act 2006, a general partner that is a body corporate can be an end user or connected with an end user for the purposes of the intermediary supplier exception, if they meet all the conditions.

When there are 2 or more general partners, for VAT purpose we treat them as a general partnership. It can be an end user or connected with an end user for the purposes of the intermediary supplier exception, if it meets the conditions of section 1161 of the Companies Act 2006.

A general partnership under the Partnership Act 1890

‘The relation which subsists between persons carrying on a business in common with a view to profit’ is the definition of partnership, it comprises 2 or more persons.

As per the conditions of section 1161 of the Companies Act 2006, a general partnership can be an end user or connected for the purposes of the intermediary supplier exception, if it fulfils the conditions.

24. Non-established taxable persons

We can define a non-established taxable person as:

  • A person who is not the resident in the UK.
  • A person who does not have a UK establishment.
  • If it is a company that is not incorporated in the UK.

In UK, if a non-established taxable person makes any taxable supplies, they must:

  • Register for VAT in the UK.
  • Account for UK VAT to HMRC.

If a person belonging in the UK and registered for UK VAT takes supplies of construction services for a non-established taxable person, it is the duty of the customer who must account for the VAT. We refer to this 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

Normal VAT rules will apply if the customer is not VAT registered in the UK.

The domestic reverse charge will apply if the customer is registered for UK VAT and the supply falls within CIS Scope.

NETPs receiving construction supplies from UK suppliers

Reverse charge will not apply if the NETP is registered for UK VAT and fulfils the conditions to be an end user or intermediary supplier. NETP has to notify the UK supplier about its status of an end user or intermediary supplier in writing.

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

25. Flowcharts

If you sell building and construction services

Use of this flowchart will help you decide if you need to use the reverse charge. You will need to use reverse charge 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.

Flowchart for Suppliers (Downloadable PDF File)

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:

  • The Payment for the supply is reported within the Construction Industry Scheme (CIS).
  • The supply is standard or reduced rated.
  • You Are not hiring either staff or workers, or both.
  • You’re not using the end user or intermediary exclusions.

Flowchart for Buyers (Downloadable PDF File)