VATREVCON12000 - Introduction: Background
Source: gov.uk (2025-04-02)


The domestic reverse charge for building and construction services (construction reverse charge) is a measure designed to counter criminal attacks on the UK VAT system including missing trader fraud (see VATF23000 (https://www.gov.uk/hmrc-internal-manuals/vat-fraud/vatf23000)) within the construction sector.

The reverse charge procedure results in a business-to-business (b2b) tax-neutral chain of transactions, with the seller no longer having to account for VAT, removing the opportunity to steal the VAT in b2b transactions within the UK (for examples, see VATREVCON31000 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon31000)). Supplies of relevant services remain subject to the reverse charge until they are supplied to a non-taxable person, or to a taxable person who is not making onward supplies of construction services (subject to end user notification, see VATREVCON33100 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon33100)).

Whilst the construction reverse charge effectively removes VAT in a series of b2b transactions between VAT registered parties, it still has its own revenue risks: for example, a buyer disappearing without accounting for the reverse charge output tax.

With the exception of supplies of staff by employment businesses (see VATREVCON26000 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon26000)), the coverage of the construction reverse charge mirrors that of the Construction Industry Scheme (CIS). The construction reverse charge only applies to supplies that are reported within the Construction Industry Scheme; if the payment for a supply is not required to be reported within the CIS, the reverse charge will not apply.

The following guidance will be of use when considering the construction reverse charge:
- the scope of the CIS (and therefore the construction reverse charge, with the exception of supplies of staff by employment businesses) (CISR14000 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14000))
- Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340 (https://www.gov.uk/government/publications/construction-industry-scheme-cis-340))
- how the construction reverse charge works (VATREVCON31000 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon31000))
- what to do if specified construction services are supplied (https://www.gov.uk/guidance/how-to-use-the-vat-reverse-charge-if-you-supply-building-and-construction-services)
- what to do if specified construction services are received (https://www.gov.uk/guidance/how-to-use-the-vat-reverse-charge-if-you-buy-building-and-construction-services)
- specific accounting issues, such as adjustments, bad debts etc (VATREVCON39000 (https://www.gov.uk/hmrc-internal-manuals/vat-reverse-charge-for-building-and-construction-services-manual/vatrevcon39000)); and
- Construction Industry Scheme Reform Manual (CISR (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform)).