Understanding the VAT reverse charge for building and construction services

On 2 April 2025, HMRC published the VAT reverse charge for building and construction services manual (the 'manual'). This blog briefly explains how the VAT reverse charge may apply to parties operating within the construction industry and examines some of the key features of the manual.

What is the VAT reverse charge?

The VAT reverse charge (reverse charge) was introduced to tackle potential fraud within supply chains. Subject to certain exclusions, it essentially places the responsibility for accounting for VAT from the supplier onto the recipient of a taxable service, including certain construction services. It should be noted that as well as employers, contractors themselves may also be the recipients procuring services and supplies. In other words, where the VAT reverse charge is deemed to apply, a supplier will not include VAT on their invoices and it will be for the recipient of the supplies or service to account to HMRC for any applicable VAT.

When will the construction reverse charge apply?

The manual has been published to assist those in the construction sector to identify when the reverse charge will apply. This is not always a straightforward question, but broadly speaking, the construction reverse charge will apply to parties who are VAT registered businesses operating in the UK and where one party pays the other for a supply or service that is reported within the Construction Industry Scheme (CIS). This is most likely to apply to contractors and sub-contractors engaged in the supply of services such as construction, repair, demolition, and internal fit-out activities.

Exclusions 

Professional services, such as the work or architects, surveyors, building engineers, and or decoration and landscaping specialists are not covered by the construction reverse charge. 

Recipients may also seek to rely upon excluding the reverse charge where they're an ‘end user’. This term has a specific meaning and the question of whether a given party qualifies as such will need to be considered carefully on a case-by-case basis. Where the recipient issues a notice to the supplier that they are an ‘end user’ then the reverse charge will not apply assuming they satisfy the necessary criteria.

The manual clarifies that a party will be an ‘end user’ where it procures services that are subject to the reverse charge and that party: 

1. Is VAT registered
2. Is obliged to process its payments to subcontractors through the CIS
3. Does not make onward supplies of the building and construction services that they receive

Further guidance

The manual provides guidance on a number of issues affecting the application of the construction reverse charge including:

1. The status of snagging and remedial works in relation to the reverse charge
2. Services supplied by a non-UK supplier, including building and construction services supplied by non-established suppliers to UK customers
3. VAT registration thresholds

The manual also contains numerous hyperlinks to related guidance notes useful for ascertaining a broader understanding of how the VAT reverse charge applies to businesses generally.  

While the manual provides a useful overview, it's not exhaustive. The guidance deals with a complex area of taxation law and will not provide definitive answers in every case. The manual should therefore not be used in isolation and if parties are in any doubt as to whether or how the reverse charge applies to their construction operations, then they should seek independent legal advice. The manual can be accessed on the official UK government website here.