Changes to VAT for Construction Services

With effect from 1 October 2019, subcontractors and contractors in the construction industry will have to change the way VAT is charged:

  • This only affects transactions at the standard or reduced rate of VAT where payments are required to be reported through the Construction Industry Scheme (CIS)
  • For those transactions the reverse charge will apply:
    • The subcontractor will neither charge nor collect VAT from the customer/contractor (they will need evidence of their customer’s VAT number)
    • The customer/contractor will account for the VAT on their own return, both as a sale and a purchase so the net effect is NIL
    • The customer/contractor will invoice the end user at the appropriate rate of VAT as usual

This applies to both labour and material so could have a significant cash flow effect for sub-contractors who will end up having to wait for a refund from HMRC if a significant part of their supplies is materials.

HMRC have produced the following flowchart to help you decide if the reverse charge applies:


When making a supply to which the domestic reverse charge applies, suppliers must:

  • show all the information normally required to be shown on a VAT invoice
  • annotate the invoice to make clear that the domestic reverse charge applies and that the customer is required to account for the VAT


The amount of VAT due under the domestic reverse charge should be clearly stated on the invoice but should not be included in the amount shown as total VAT charged.

Under the VAT Regulations 1995 invoices for domestic reverse charge supplies, when the customer is liable for the VAT, must include the reference ‘reverse charge’. The following examples fulfill 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


HMRC have introduced this change to combat “missing traders” ie those who charge and collect VAT from their customers and then disappear without paying it over to HMRC. If you are unsure or need guidance please contact us.