The new VAT reverse charge - does it affect me?

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As noted in our earlier insight, new rules are being introduced to the payment of VAT and early preparation is needed before these take effect on 1 March 2021.  Here we consider this in more detail to explain the types of services affected. 

What are the specified services?

The reverse charge will only affect “specified services”. These services are closely aligned to those defined as “construction operations” in the Construction Industry Scheme (CIS). They are generally supplied upon which VAT is chargeable and where payment is reported through CIS. These include, among other things, services such as construction, alteration, repair, extension and demolition of building structures and works forming or to form, part of the land such as walls, roads and power lines.  Also included are installing systems such as heating and lighting and preparatory work such as site clearance, laying foundations and erecting scaffolding. 

Goods (materials) that are supplied with construction services and which are treated as part of a single supply of services are also subject to the reverse charge. Whether or not a transaction that comprises construction services and goods is to be treated as a single supply is likely to be determined by case law. 


Certain services are excluded from the definition of construction services and do not come within the scope of the reverse charge. These include services relating solely to: 

  • professional services of architects, surveyors or consultants;
  • manufacture of building, engineering, heating, lighting, air-conditioning or drainage components;
  • oil, gas or mineral extraction; 
  • installation of security systems; 
  • artistic works; or
  • signage

However, the above services will not be excluded if they form part of a single supply of construction services, such as under a design and build contract. 

Excepted supplies: 

Certain services are excepted so that they do not come within the scope of the reverse charge. This helps to ensure that the reverse charge only applies to  construction services supplied to other construction businesses. 

There are three categories of excepted supplies:

  1. Contractors that are not required to report payment under CIS; 
  2. End-users; and
  3. Intermediaries. 

Ender users are taxable persons who use the construction services for any purpose, other than for making further supplies of construction services. HMRC guidance states that end-users are not typically construction businesses, except for property developers who generally use those services to make a supply of an interest in the property (rather than making further supplies of construction services). 

Intermediaries are recipients who make onward supplies of construction services without material alteration or further processing. Such recipients are not within the scope of the reverse charge as long as, generally speaking, they are connected with the end-user and the supplies are made in relation to land, buildings or civil engineering works in which both the intermediary and the expected end-user of those services have a relevant interest. 


It is important for businesses to review the supplies that they make and receive to consider whether the reverse charge applies. These changes will apply to all specified services made from 1 March 2021 (even in relation to contracts that have been entered into previously).  Businesses may need to make amendments to their invoicing and accounting systems to deal with the change too. 

Businesses will also need to consider the impact on their cash flow and how they are to deal with this. 

It is likely that construction documentation will need to be reviewed, and it should be considered whether changes need to be made. For example, if the recipient is an end-user, the construction contract may need to include a warranty from the recipient to the supplier to this effect so that the supplier is not required to apply the reverse charge. Furthermore, consideration may need to be given to any VAT clauses, and whether such clauses need to provide for a recipient to be required to pay an amount net of VAT when the reverse charge applies.

Article edited 18/02/21

How can we help?

If you need any assistance on how the VAT reverse charge will apply to your business or how your contracts should be amended to deal with the forthcoming changes, please get in touch.

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