The Construction Services Domestic Reverse Charge

Key points

The Construction Services Domestic Reverse Charge (“CSDRC”) for the construction industry, delayed from October 2019, came into force on 1 March 2021.

What does it mean?

  • The CSDRC means the customer receiving the specified service must pay the VAT to HMRC instead of the supplier. This will have a cash-flow effect for both supplier and customer.
  • Existing contracts should be reviewed urgently to determine who pays the VAT after the change.
  • You will need to change the settings in your bookkeeping and invoicing software to account for and report the reverse charge correctly on your VAT returns.
  • Supplies covered by the reverse charge are excluded from the Flat Rate Scheme. It may be necessary to withdraw from the scheme.

Why is this change happening?

The new regulations are intended to counter “missing trader fraud” i.e. where a trader reclaims as input tax on purchases VAT that the supplier has no intention of ever paying over to HMRC.

Who is affected?

Individuals or businesses registered for VAT in the UK either supplying certain construction industry services to a VAT-registered person or receiving reverse charge supplies.

As the CSDRC applies to VAT registered persons, it is important to note that unlike some other “reverse charge” schemes, amounts accounted for under the CSDRC will not count towards the VAT registration limit. This means that if a customer is not already required to be registered for VAT, the CSDRC “deemed self-supplies” will not make them so.

The reverse charge does not apply to consumers or final customers of building and construction services (end-users). End-users are businesses, or connected businesses (intermediary suppliers), that do not make onward supplies of the building and construction services in question. It will be up to the customer to make the supplier aware that they are an end user or intermediary supplier and that VAT should be charged in the normal way instead of being subject to reverse charge. Suppliers should still consider altering their terms and conditions to say they will assume that their customer is an end user unless they say they are not. This places a responsibility on the customer to respond if this is not the case.

What services are affected?

The reverse charge will affect supplies of building and construction services supplied at the standard or reduced rates that also need to be reported under CIS. These are called specified supplies.

It is important to note that the reverse charge applies to the whole service whereas CIS payments to net status sub-contractors are apportioned and no deductions are made on the materials content.

If any of the services in a supply chain are subject to the reverse charge, all other services (even if that service would be excluded if it were being supplied as a single service) will also be subject to it.

The reverse charge does not apply if the service is zero rated for VAT (as for example most services related to housebuilding) or if the customer is not registered for VAT in the UK.

You can find out more about the services that are included here:

When do the provisions take effect?

For contracts starting after 1 March 2021 you should decide whether the reverse charge applies from the start of the contract.

For existing contracts that will span the date of the change, the CSDRC will apply at the first tax point after 1 March 2021. Providing building and construction services is usually seen as continuous supplies of services for VAT purposes. This normally means VAT is due when a VAT invoice is issued, or payment is received (whichever is earlier).

To determine the reverse charge treatment of existing contracts to be ready for 1 March 2021, HMRC recognises that it will be easier if one VAT accounting treatment is given to all contracts with a sub-contractor. So, if the contractor looks across all construction contracts with a sub-contractor and can see that reverse charge applies to more than 5% of contracts (by volume or value) with that sub-contractor, then the reverse charge may be applied to all the contracts.

Any invoices raised for existing contracts before 1 March 2021 but not paid by 31st May 2021 will need to be re-issued as reverse charge invoices.

What you need to do to be ready for the start of the domestic reverse charge

You need to take action by:

  • Checking whether the reverse charge affects either your sales, purchases or both
  • Verifying the VAT and CIS status of customers to establish if they are “end-users”
  • Making sure your accounting systems and software are updated to deal with the reverse charge
  • Considering whether the change will have an impact on your cashflow
  • Making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate
  • Altering your invoices to include the following example wording if the provisions apply:
    • “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.”
    • “Reverse charge: VAT Act 1994 Section 55A applies”
    • “Reverse charge: S55A VATA 94 applies”
    • “Reverse charge: Customer to pay the VAT to HMRC”
    • “This invoice is subject to the domestic reverse charge of VAT at [5%][20%]* – customer to account for VAT due on this invoice to HMRC” * delete as appropriate
  • Consider moving to monthly returns. As a result of the reverse charge some businesses may find that, because they no longer pay the VAT on some of their sales to HMRC, they become repayment traders (their VAT Return is a net claim from HMRC instead of a net payment). Repayment traders can apply to move to monthly returns to speed up payments due from HMRC.


Mark is a plumber, VAT registered as a sole trader. He is doing some work on an office block, invoicing the main contractor Alan for his work.

Alan is also VAT registered and will then invoice the building owner. Alan is not an “end-user” because he is making an onward supply of construction services to his own customer. He is an “intermediary supplier”.

The invoice raised by Mark will be subject to the new procedures i.e. no VAT is charged.

Let’s say the value of his work including materials will be for £15,000.

Mark’s VAT return will only include the value of the sale in Box 6 (outputs) of his VAT return:

•             Box 6 – outputs – £15,000

Alan will do the reverse charge calculation and make the following entries on his return:

•             Box 1 – output tax £3,000 (i.e. £15,000 x 20%)

•             Box 4 – input tax – £3,000 (same figure as Box 1)

•             Box 7 – inputs – £15,000 (net value of payment made to Alan)

If you have any questions regarding the operation of the new construction services domestic reverse change please get in touch with your Thomson Cooper Partner or email

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