This is a new scheme brought in by HMRC to combat fraud within the construction industry. It is aimed at preventing sub-contractors claiming the VAT on their sales invoices and then not paying it over to HMRC.

From 1 March 2021, it will be the responsibility of the contractor (customer) to pay over to HMRC the vat due on the sub-contractor’s (supplier’s) sales invoice. This is known as the VAT Reverse Charge.

VAT Reverse Charge only applies if you can answer ‘Yes’ to the following questions:

  1. Do any of the supplies your making come under the remit of CIS (Construction Industry Scheme)?
  2. Is the supply at standard or reduced rate vat?
  3. Is your customer VAT registered?
  4. Is your customer an End User, ie is your customer acting as a sub-contractor to another contractor or are they acting on their own?

The VAT Reverse Charge rules do not apply to

  • Sub-contractors doing zero rated work
  • Sub-contractors who are not vat registered
  • Contractors who are not CIS registered

The End User is an individual or business that uses sub-contractors for their own use, eg for working on their own premises and, therefore, do not pass costs on to another business or individual.

If your customer is an End User then VAT is applied to your sales invoice in the normal way. If your customer is not the End User then you need to apply the reverse vat charge rules.


Contractor A hires Sub-contract B to work on his building renovation project. Contractor A is both CIS and VAT registered, as is Sub-contractor B.

Contractor A informs Sub-contractor B that he is an End User and that the vat reverse charge applies.

Sub-contractor B, therefore, issues a normal VAT sales invoice (subject to CIS) to Contractor A.

Property Developer A hires Contractor B to convert an old building into flats. Contractor B hires Sub-contractor C to assist in the conversion work. All three are CIS and VAT registered.

Contractor B informs Sub-contractor C that he is not the End User. Property Developer A informs Contractor B that he is the End User.

Sub-contractor C issues Contractor B with a reverse charge sales invoice as he is not the end user. Contractor B issues Property Developer A with a normal VAT sales invoice as he is the end user.

Sub-contractor C does not pay HMRC the sales vat.

Contractor B pays Sub-contractor C’s sales vat and his own sales vat. He also reclaims his own purchase vat.

Property Developer A reclaims his purchase vat from HMRC.