Domestic Reverse charge VAT for the Construction Industry

Brexit and the pandemic has paused many changes that the HRMC were planning to roll over the last year. This new rule will affect all VAT registered companies within the construction industry that report under the Construction Industry Scheme (CIS).


The Domestic Reverse Charge VAT legislation is a change in the way CIS registered construction businesses handle and pay VAT.


The new rules come into force on 1st March 2021, having previously been delayed from October 2020.


It is an anti-fraud measure designed to cut down on “missing trader” fraud. This is where companies receive high net amounts of VAT from their customers but have no intention of paying the VAT to HMRC. It will affect all VAT registered construction business who supply or receive construction and building services that are reported under the Construction Industry Scheme (CIS). It will mean that the customer (the contractor) will be responsible for the VAT due to HMRC rather than the supplier (the sub-contractor).


If you are a CIS sub contractor you will NO LONGER charge VAT to your CIS customers. Instead, on your invoices, you need to state your customer is responsible for the VAT and show what VAT rate should be applied.


If you are a CIS contractor, when you receive a bill from your CIS sub contractor you will be responsible for reporting both the input and output VAT on that bill.


However, there are some exemptions!

The reverse charge does not apply to:

Also, the reverse charge does not apply to taxable supplies made to the following customers:


What you need to do:



If you would like to start using cloud-based software for raising invoices, then please email us at [email protected] and we can get you set up.




Treatment for existing contracts

If these rules apply to you the VAT treatment is determined based on the date of the contract and when it has been paid.



VAT schemes


Cash accounting CANNOT be used for CIS reverse charge – so you will have to account for these based on the invoice date.


However, if you supply services that are NOT subject to the reverse charge, for example to private individuals or end users, you must account for VAT on the dates you were paid.


These changes will apply from 1st March 2021 – so there isn’t much time to adjust your procedures.

If you have any questions about this, then please let us know, and we will be happy to work through your individual circumstances.