There are special VAT reverse charge rules for certain building contractors and sub-contractors. The rules, which came into effect on 1 March 2021, makes the supply of most construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge only applies to supplies of specified construction services to other businesses in the construction sector.

The charge applies to standard and reduced rate VAT services:

This means that where the rules apply, sub-contractors no longer add VAT to their supplies to most building contractor customers. Instead, contractors are obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the VAT domestic reverse charge.

Please note, contractors who make the domestic reveres charge payments for their sub-contractors can, in most circumstances, claim the same amount on their VAT return as input VAT. Consequently, there is no cash flow effect; just the hassle of making sure the accounting entries are dealt with correctly.

The VAT domestic reverse charge applies to the following services:

Source:HM Revenue & Customs | 20-05-2024