By July 19, 2019 Insights

The Construction Services Domestic Reverse Charge (CSDRC) VAT rules being expanded to include the supply of certain goods and services in the construction industry was first proposed in 2017. The purpose of these rules is to help reduce missing trader fraud. The planned changes help to bring construction in line with other modern industries, such as those in the supply of computer chips. It will mean that VAT registered businesses who supply construction services to other VAT registered ones will see a change in how they account for VAT on certain inputs and outputs.

The main test for a transaction will be around whether a purchase is for onward sale or for the goods or services being supplied going to the ‘end user’ or customer. This should be indicated on any invoice raised for those items covered by the new rules. An invoice will state that a sale is subject to the domestic reverse charge. The end user of this item will then account for the VAT through their VAT return. This takes place instead of middlemen in the supply chain recording certain items as both an input and an output for VAT purposes. The final recipient can then use this invoice to recover the VAT amount on supplies as an input tax (subject to normal rules).


The change will affect any business to business supplies of goods/services where the recipient makes an onward supply of goods/services provided to them. Where some part of a supply would be subject to the domestic reverse charge, then it should be applied to the whole supply. It will then be used for any subsequent sales of construction supplies between the same parties if they agree to the treatment. This can help to speed up the process in deciding whether or not the domestic reverse charge should apply to regular transactions.

At the moment, it’s expected that any materials or services which fall under the Income Tax Construction Industry Scheme (CIS) will be covered by the new VAT changes. The definitions of appropriate goods and services have been taken directly from the CIS scheme rules. It will include the alteration or repair of a building, as well as various forms of support work. Site clearance will come under this new jurisdiction. So will certain forms of plumbing and electrical engineering.

However, the domestic reverse charge only concerns services to a contractor, not a customer. It will not apply should a contractor not be VAT registered and this could be adjusted for.


It’s important to note that not all services will be included in this new change. At present the services which will not be included in the ruling are the following:

  • Supplies which are zero-rated.
  • Services supplied to the end user – the property owner.
  • Services supplied to a main contractor that sells the new building to a customer.
  • Recipients who make onward supplies of construction services via a connected company.
  • Where the supplier and recipient have a landlord/tenant relationship.

Certain items, when supplied on their own, will not be included as follows:

  • The creation of components for features such as heating, lighting, power supply, drainage, water supply, fire protection and sanitation.
  • The use of professional services, including architects, surveyors, and professional consultants.
  • Installing features such as blinds, shutters, security systems and public address systems.

There may be further clarification on what is or isn’t included from HMRC prior to 1st October, so please be aware that this might not be the final word on the subject.


Some business owners might worry this could lift them above the VAT registration threshold. However, the receipt of a domestic reverse service charge will not count towards VAT registration. Therefore, if your use of this system were to push you over the VAT threshold, it would not mean you have to be registered for VAT if you did not have to do so previously.

This differs from other reverse charges, such as those supplies bought from non-UK businesses. For these, the value of such services would be counted in your VAT threshold assessment.


For anyone within the construction industry, this could be a significant change to your present practices. Now, you will have to reflect sales and purchases transactions subject to domestic reverse charges in your accountancy software. Invoices will need to be checked and treated accordingly within your accounting. With VAT no longer charged on some sales, too, you might notice a short-term change in cash flow. If you are unable to use the collected VAT from customers as working capital any longer, you might have less day-to-day cash flow than you did previously.

Remember that, given the variance in how construction services are subject to VAT, you need to take the correct VAT rates into account. This will be down to the end user to determine. You might need to verify this independently with more than one supplier to ensure your records are up-to-date and accurate. It will be necessary to confirm end user status for most transactions, or you could find using this particular new ruling problematic.

This change means you must disclose to your subcontractors if you are at the end of the supply chain or not.


First off, you should take the time to look at all supplies received or made to VAT registered customers and contractors. This will help you to work out what is going to be subject to domestic reverse charges from October 2019. You should ensure your accountancy system is updated to cope with the changes. Be sure to take into account the potential impact that this could have on your cash flow moving forward, as noted above.

Not sure how to get ready for this change in VAT? Then contact Devonshire Green today. We can help you to prepare for the changes which are due in advance of the October 2019 deadline.