VATREVCON33700 - How the construction reverse charge works: End users and intermediary suppliers: Local authorities and other public bodies as end users
Source: gov.uk (2025-04-02)


The end user exclusion will usually apply to supplies to public bodies.

Most supplies will either be:
- related to works to the public body’s property and land
- provided to the public body so it can discharge its responsibilities under a special legal regime. This applies to supplies that will be used for activities that a public body has a statutory obligation to provide, or must perform in a way that is different to private sector providers.
However, if the public body is acting on a commercial basis, and selling on the construction services, the end user exclusion will not apply. The public body will therefore have to account for the VAT to HMRC under the reverse charge. Similarly it will have to apply the reverse charge to the customer if the other conditions are met unless the customer has made an end user / intermediary supplier notification.

Planning gain agreements

Developers may provide many other types of goods and services free, or for a nominal charge, to the local authority or other authority under Section 106 of the Town and Country Planning Act 1990 (http://www.legislation.gov.uk/ukpga/1990/8/section/106) or similar agreements.

These agreements are sometimes described as planning gain agreements and are described in more detail under section ‘Developers’ agreements’ in VAT Notice 742 (https://www.gov.uk/guidance/vat-on-land-and-property-notice-742).

Any provision of such goods and services by the developer to get a planning gain agreement in line with the law is not a supply for consideration and so no VAT is chargeable on that supply. Therefore, the developer is not making onward supplies of construction services under the agreement. It can therefore opt to be an end user for reverse charge purposes for any such supplies received from subcontractors.

Private finance initiative arrangements

The Private Finance Initiative (PFI) is a form of Public Private Partnership (PPP). The initiative enables public and private sectors to work more closely together by making use of public sector infrastructure and services. Private Finance Initiative and Public Private Partnership agreements between a private company and a public body are often for long periods, typically 20 to 30 years.

The Private Finance Initiative and Public Private Partnership agreement will usually provide for the private company to provide a fully maintained asset in return for payment of a unitary charge based on availability, as well as providing ad-hoc services to the public body upon request.

Unitary charge payments made by a public body under a Private Finance Initiative and Public Private Partnership agreement are not treated as payments for a supply of building and construction services. The private company is not supplying building and construction services to the public body and so is the end user of those services for the purpose of the reverse charge. All supplies of such services to the private company are subject to normal VAT rules and VAT should be charged at the appropriate rate.

If there is a separate agreement or contract between the public body and the private company for the supply of ad-hoc construction services the reverse charge will:
- not apply to supplies by the private company to the public body, if the public body has made an end user notification
- apply to supplies of construction services to the private company because there is an onward supply of those specified services to the public body.