VAT Reverse Charge for Construction

What is the VAT reverse charge?

Used for most supplies of building and construction services, the VAT reverse charge was introduced on the 1st of March 2021 to tackle fraud within the sector.

It means that the VAT for services covered by the Construction Industry Scheme (CIS) needs to be paid directly to HMRC instead of going to the contractor/subcontractor/supplier.

What is the Construction Industry Scheme?

CIS is a tax deduction scheme for both contractors and subcontractors working in the construction industry.

A contractor will withhold either 20% or 30% of a subcontractor’s pay and then pay on to HMRC. These deductions will count as advanced payments toward the subcontractor’s tax and NI.

It isn’t mandatory for a subcontractor to register for CIS, but if they do, 20% will be withheld, whereas this figure increases to 30% if they don’t.

The type of duties covered by CIS include:

• Preparing a site for work, as well as the clean-up inside a building after work has been carried out.
• Demolition.
• Any repairs or alterations.
• Decorating.
• Installing systems for heating, lighting, power, water and ventilation.

For more information on CIS, read our CIS – Construction Industry Scheme page

Does the VAT reverse charge apply to umbrella company contractors?

The reverse charge only applies to VAT registered contractors who are either supplying or receiving construction services that are reported under CIS.

Examples of these types of services include:

• Either constructing, altering, repairing, extending, demolishing or dismantling: buildings or structures, power lines, railways, pipelines and electronic communications equipment (the full list can be found on GOV.UK.).
• Installing heating, lighting, drainage, power supply and water mains in a building or structure.
• Internal cleaning of buildings and structures.

In the case of the VAT reverse charge, employment businesses (such as an umbrella company) are treated as supplying staff rather than building and construction services – even if within the scope of CIS.

Some umbrella contractors may choose to join an umbrella company that specialises in construction in order to make the process easier for them.

We hope this page has answered some of your questions on the VAT reverse charge for Construction. Our team of experts are available to answer any other queries you may have, so give us a call on 01206 591 000 or email sophie.lewis@contractorumbrella.com.