VATREVCON21000 - Scope of the construction reverse charge: Background to and relationship to the Construction Industry Scheme (CIS)
Source: gov.uk (2025-04-02)


The scope of the domestic reverse charge for building and construction services, as defined in SI 2019/892 art. 5-7 (https://www.legislation.gov.uk/uksi/2019/892/article/5), is based on that of the Construction Industry Scheme (CIS). The CIS is aimed at preventing evasion of direct taxes by subcontractors working in the industry and who are unknown to HMRC. The essence of the Scheme is that deductions are made at one of two prescribed rates from payments made to subcontractors engaged in construction operations carried out within the United Kingdom, unless the subcontractor is registered gross under the Scheme, as set out in Finance Act 2004 section 63(2) (https://www.legislation.gov.uk/ukpga/2004/12/section/63).

The new Construction Industry Scheme was introduced on 6 April 2007. The current guidance on the CIS is available in the Construction Industry Scheme Reform Manual (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform) and Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340 (https://www.gov.uk/government/publications/construction-industry-scheme-cis-340)).

Although the construction reverse charge uses the CIS definition of ‘construction operations’ as the basis for its scope, it is not part of the Construction Industry Scheme. The construction reverse charge applies to standard and reduced rate VAT services reported within the CIS, except for supplies of workers provided by employment businesses. The services to which the construction reverse charge applies are referred to throughout this manual as ‘specified services’.

There are six situations where a supply of services reported within the Construction Industry Scheme would not need to be reverse charged:
- It is a supply of workers provided by an employment business (this is not the same as a labour-only supply of specified services, which does come under the construction reverse charge – see VATREVCON26000 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon26000) for explanation of the difference between the two and possible scenarios)
- The supplier of the services is not VAT registered (or required to be)
- The purchaser of the services is not VAT registered (or required to be)
- The supply is zero rated (see VATREVCON27000 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon27000))
- The supplier and purchaser of the supplies are both part of the same VAT group (see VATREVCON32400 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon32400))
- The purchaser of the supplies is a business or a group of connected businesses that does not make an onward supply of the building and construction services they receive (see End Users – VATREVCON33100 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon33100)), or an intermediary for such a business or group of connected businesses (see Intermediary Suppliers – VATREVCON33300 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon33300)), AND has notified the supplier that they are an end user (or intermediary) for the purposes of the construction reverse charge.
Payments reported through the CIS

For the purposes of this guidance, a contractor is any business that is required to report payments through the CIS. This may be a ‘mainstream’ contractor, who may be registered for the CIS by virtue of carrying out construction operations, or may be a ‘deemed contractor’, who must report payments through the CIS because of the value of their expenditure on construction operations. The requirement to report payments made to suppliers under the CIS is what brings the supplies a contractor receives inside the scope of the construction reverse charge.

Some HMRC guidance refers to contractors who are required to report payments through the CIS as being ‘registered for CIS’, This is not strictly accurate; SI 2019/892 art. 8 (https://www.legislation.gov.uk/uksi/2019/892/article/8) introduces the linkage with the Construction Industry Scheme by excluding construction operations (described as ‘specified services’) where a return is not required under the CIS regulations.

Subcontractors may make supplies under the CIS both to customers who are required to be CIS-registered as a subcontractor in their own right, or to contractors who may not be required to register for the CIS (as a subcontractor) but still required to report under the CIS. Where CIS status is unclear the subcontractor will need to ascertain whether or not the supply is required to be reported within the CIS, e.g. by asking the contractor.

The decision to link the scope of the construction reverse charge to the scope of the CIS was made following consultation with the construction industry in advance of the introduction of the construction reverse charge. While there are some cases, as highlighted in this manual, where it is not practical to completely mirror the CIS simply because of the way the VAT system works, where possible the linkage is maintained.

Terminology of parties

For the purposes of this manual those making supplies of construction services (subcontractors) will be referred to as ‘suppliers’ and those receiving supplies of construction services (typically mainstream contractors or ‘deemed contractors’) will be referred to as ‘customers’. For a detailed explanation of terminology of parties used in the construction industry and how it applies to these supplies see VATREVCON32000: Who needs to apply the construction reverse charge (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon32000).

Taxpayers in general will be referred to as 'traders' throughout this manual - this may refer to a supplier or a customer.