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Business Services  •  Business Tax  •  VAT

VAT Domestic Reverse Charge: How will it impact the construction industry?

By RJP LLP on 18 January 2021

The VAT Domestic Reverse Charge (VDRC) rules for the construction industry will finally come into operation on 1 March 2021 after many delays. Originally set to be introduced in October 2019, they will change the way businesses in the construction industry operate and pay VAT. Instead of paying back VAT charged to customers in arrears, it will be payable directly by the end customer to try and reduce VAT underpayment.

The new regulations are applicable to anyone who works in the property, building or construction trades, or who employs tradespeople for such services.

Here is everything you should know about the VDRC and how it works:

VDRC for Suppliers

If you are VAT registered in the UK, supplying building and construction industry services and meet the following points, you must use the VDRC:

  • Your customer is registered for VAT in the UK
  • Payment for the supply is reported within the Construction Industry Scheme (CIS)
  • The services you supply are standard or reduced rated
  • You are not an employment business supplying either staff or workers, or both
  • Your customer has not given written confirmation that they are an end user or intermediary supplier

Below are three points which you may want to consider to ensure you are prepared:

  • Make sure your accounting systems and software can deal with the VDRC
  • Consider whether the change will impact your cash flow and if so, how will you manage that?
  • Make sure all your staff who are responsible for VAT accounting are familiar with the VDRC and how it will work

All contractors are advised to review their contracts with sub-contractors, to decide whether the VDRC applies to the services which they receive under the contracts.

Contractors should also notify their suppliers if services will fall under VDRC rules, to ensure suppliers understand why they are being paid NET rather than the gross amount.

Are there any exclusions to the VDRC?

The VDRC doesn’t apply if:

What types of services will require the VDRC?

You will need to apply the VDRC when supplying any of the following services:

  • Constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not) including offshore installation services;
  • Constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
  • Installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure;
  • Internal cleaning of buildings and structures so far as carried out in the course of their construction, alteration, repair, extension or restoration;
  • Painting or decorating the inside or the external surfaces of any building or structure;
  • Services which either form an integral part of, or an element of the preparation or completion of the services described above - including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

What services do not require the VDRC?

The following services are not subject to the VDRC:

  • Drilling for, or extracting, oil or natural gas;
  • Extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose;
  • Manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site;
  • Manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site;
  • Professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants;
  • Making, installing and repairing art works such as sculptures, murals and other items that are purely artistic;
  • Signwriting and erecting, installing and repairing signboards and advertisements;
  • Installing seating, blinds and shutters;
  • Installing security systems, including burglar alarms, closed circuit television and public address systems.

To avoid there being doubt about how to apply the new rules, HMRC has created handy flowcharts that explain exactly how the VDRC works in practice, available here:

Scenario 1: Deciding whether to apply the VDRC or normal VAT rules

Scenario 2: Applying the VDRC for businesses receiving building and construction services

More information

The following additional resources may be helpful to learn more about the new rules

If you have any questions about the forthcoming VDRC rules and would like some support, please contact us by emailing

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