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With effect from 1 October 2019, the reverse charge will apply to certain supplies of construction services between VAT registered businesses (‘specified services’) where payments are required to be reported through the Construction Industry Scheme (CIS).

Under the new arrangements, the customer will be liable to account for the VAT under a ‘reverse charge’ arrangement in respect of those purchases rather than the supplier. The new rules only apply to businesses that are supplying their construction services to another business who will sell on these construction services. The reverse charge will therefore apply through the supply chain up to (but not including) the supply to the end user.

A VAT-registered business that receives a supply of specified services (which are not excepted supplies) from another VAT-registered business will be required to account for the VAT amount through its VAT return instead of paying the VAT amount to its supplier. It will be able to reclaim that VAT amount as input tax, subject to the normal rules. The supplier will need to issue a VAT invoice that indicates the supplies are subject to the reverse charge.

Specified Services

The reverse charge applies only to supplies which are subject to VAT at the standard or reduced rate. The services to which the reverse charge are the same services as those to which the Income Tax Construction Industry Scheme (“CIS”) applies. They extend not only to construction but to alterations or repairs of buildings, some types of electrical and plumbing work, site clearance etc.  Examples include:

  • construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations;
  • construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including walls, road-works, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
  • installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection;
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
  • painting or decorating the internal or external surfaces of any building or structure; and
  • services which form an integral part of, or are preparatory to, or are for rendering complete, the services described above including site clearance, earthmoving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

The reverse charge will include goods, where those goods are supplied with the specified services.

Excepted Supplies

The following are not included within the definition of construction services:

  • drilling for, or extraction of, oil or natural gas;
  • extraction (whether by underground or surface working) of minerals and tunnelling;
  • boring, or construction of underground works;
  • manufacture of building or engineering components or equipment, materials, plant;
  • machinery, or delivery to site;
  • manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or delivery; to site;
  • the professional work of architects or surveyors, or consultants;
  • engineering, interior or exterior decoration or in the laying-out of landscape;
  • the making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature;
  • signwriting and erecting, installing and repairing signboards and advertisements;
  • the installation of seating, blinds and shutters; and
  • the installation of security systems, including burglar alarms, closed circuit television and public address systems.

The reverse charge will also exclude:

  • Businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land;
  • Supplies between landlord and tenant or vice versa;
  • Supplies that are zero-rated; and
  • Supplies to end users.

How can Haines Watts help

Businesses in the construction industry should be reviewing their services and place in the supply chain in order to establish whether / to what extent they will fall within the reverse charge system. Recipients will need to set up systems and procedures to pay the net amount to suppliers, as well as to account for (and reclaim) the VAT on their VAT returns. Suppliers will still need to raise VAT invoices with the VAT on them, but specifying that the VAT is to be accounted for by the recipient.

Suppliers will need to ensure they do not account for the VAT when completing their returns.

The new system may also affect suppliers who use VAT receipts to aid cash flow (ie they charge and receive VAT prior to having to declare it on their next return). Similarly recipients will have a cash flow benefit as they will not have to pay the VAT until they submit their return.

The motto as ever is “be prepared” and Haines Watts can assist businesses in getting ready for these changes well in advance.

Want to know more? Call us on 0117 974 2569 or email

About the author

Adam Lloyd

Adam Lloyd is our Regional Head of Indirect Tax at Haines Watts. He assists clients in the High Wycombe, Reading, Berkhamsted and Oxford areas and is particularly experienced in VAT.

Adam is well qualified, holding CTA (Chartered Tax Advisor) status. He was previously a VAT Director at an Audit and Business Advisory company for private and family firms and has nearly 30 years’ experience in the financial sector.

Adam's time in industry has enabled him to develop a deep understanding of the day to day operations of financial institutions as well as the bigger picture faced by people working therein, while his time in practice has enabled him to develop strong client and relationship management skills.

He has knowledge of a wide range of industries, including Corporate Finance, Financial Services, Retail, Charities, Healthcare, Education and Cross border trade.
Adam has a keen interest in cartooning & animations, and he also revels in car restoration.

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