VAT Reverse Charge for Building and Construction Services Manual

VATREVCON32100 - How the construction reverse charge works: Who needs to apply the construction reverse charge: Description of roles

The construction reverse charge applies to supplies made between two businesses who are UK VAT-registered (or required to be), where the customer is a CIS contractor (including deemed contractors) required to report payments within the CIS. The CIS status (i.e. whether paid gross or net of deductions) of the supplier is irrelevant. Supplies for which payment is not required to be reported within the CIS are not subject to the construction reverse charge.

Contractors

A contractor is a business or other concern that pays subcontractors for construction work. Contractors may be construction companies and building firms (sometimes referred to as mainstream contractors), but may also be Government Departments, local authorities, and other types of business that are normally known in the industry as ‘clients’.

Non-construction businesses or other concerns (as set out in CISR12050) are counted as contractors for the purposes of the CIS if their expenditure on construction operations is £3 million or more in any rolling 12 month period. Under the CIS, any person carrying on a business, or defined body, whose expenditure on construction operations exceeds certain limits is known as a ‘deemed contractor’ (CISR61240). The construction reverse charge applies to deemed contractors in the same way as it applies to mainstream contractors.

Subcontractors

Subcontractors are those businesses that carry out building work, known as ‘construction operations’, for contractors within the United Kingdom.

Some businesses may act solely as contractors or as subcontractors, but many act as both. This means they pay businesses below them and receive payments from a main contractor above them in a chain.

For the purposes of the construction reverse charge, subcontractors can be both suppliers and customers. Contractors or deemed contractors will usually be customers, but may make an onward supply of the construction services they receive, in which case they will also be suppliers for the purposes of the construction reverse charge.