Last edited 01 Mar 2021

VAT reverse charge

[edit] Introduction

Value Added Tax (VAT) is a tax added to the cost of certain goods and services. It is only accountable where the party raising an invoice is VAT-registered. Parties must register if their VAT-able turnover exceeds a minimum threshold.

In June 2018, the government launched a consultation on the introduction of a VAT reverse charge for construction services to tackle fraud in the construction industry. This was originally intended to come into effect on 1 October 2019, however following lobbying it did not actually come into effect until 1 March 2021

The reverse charge enables a customer to charge themselves VAT rather than the supplier charging it. This removes any opportunity for the supplier not to pay HMRC (missing trader fraud).

The reverse charge applies to businesses that supply services to another business that will then sell on that service, but not those that supply services to consumers.

Sometimes referred to as the domestic reverse charge, it applies only to supplies of specified construction services which are subject to the standard and reduced rate of VAT, which include:

Services and supplies that are excluded from the reverse charge include:


More information about the reverse charge can be found at:

[edit] Criticism and delay

In July 2019, the Federation of Master Builders called for a six-month delay following research that found more than two thirds of construction SMEs had not even heard of the reverse charge.

In September 2019, following strong lobbying by the construction industry the government announced that the reverse charge would not be introduced until 1 October 2020, stating:

Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019.

To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.


In June 2020 the Government delayed the introduction of reverse charge VAT by a further five months until 1 March 2021 due to the Coronavirus pandemic. Despite continued lobbying to push back this date further, the reverse charge was introduced on 1 March 2021.

Andy Mitchell, chairman of the Construction Leadership Council said: “The implementation of Reverse charge VAT will restrict cashflow in our industry, especially to the smallest firms, at an extremely critical financial period for many businesses. This policy risks reversing any recovery industry has made from Covid-19 and will limit the scope for protecting and creating jobs across the UK.”

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