From the 1st October 2019 a reverse charge procedure is being introduced for certain building and construction services.  In certain circumstances the customer will be liable to account for VAT in respect of those purchases, rather than the supplier and this is known as the ‘reverse charge’.

This is completely new, and is not to be confused with the reverse charge on the import and export of goods or services to and from the EU. 

This new reverse charge procedure will apply to the supply chain where payments are required to be reported under the Construction Industry Scheme (CIS) and the supply is either standard or reduced rated for VAT purposes.  This reverse charge will include goods supplied with these services. 

This reverse charge procedure will not apply to the end user.  It also does not apply between connected parties or landlord and tenant relationships. 

The overall aim of this new requirement is to reduce the ’missing trader’ VAT fraud.

From the 1st October 2019, where a VAT registered business receives a supply of specified services, from another VAT registered business, it accounts for the VAT through its VAT return instead of paying the VAT to the sub-contractor for onward payment to HMRC.  At the same time the main contractor will also reclaim the VAT, subject to the VAT normal rules. The sub-contractor will need to issue a VAT invoice that indicates the supply is subject to a reverse charge.

In an example of a contractor receiving services for a £1,000 plus £200 of VAT from a sub-contractor.  Currently the contractor will pay the sub-contractor £1,200 and reclaim VAT of £200, leaving a net cost to the contractor of £1,000.  The sub-contractor would receive the £1,200 and pay over £200 to HMRC, leaving net income of £1,000.  Under the new regime, the contractor will pay the sub-contractor £1,000 and then declare £200 of VAT in box 1 under the reverse charge and reclaim £200 of VAT in box 4 of the VAT return, leaving the contractor with the same net expense of £1,000.  The sub-contractor has also received the same net £1,000 of income. 


As can be seen from the above example there is no change to the net position of either party.  However, the sub-contractor will no longer have the cash flow advantage of receiving the VAT and the time delay before this is paid over to HMRC.  

Flat Rate Registered Businesses

As the application of the reverse charge is complex and there are several scenarios where it does not apply, we are publishing a technical factsheet which will provide a flowchart describing the various situations for a subcontractor to consider. We’ll include this on our website over the coming weeks. 


You will need to consult with your software provider to ensure you will be ready for these changes.


By Partner, Di Perrett

For further advice on the above matter please do not hesitate to contact me or your local office