Reverse charge and end user rules: opportunity?

Reverse charge accounting

The purpose of reverse charge accounting is to reduce VAT fraud. In other words, you will not charge 5% or 20% VAT on your sales invoices and your VAT-registered customer will declare output tax on their own returns instead. This process removes the risk that a supplier will charge VAT and disappear without accounting for output tax on a return.

The reverse charge applies in the construction industry when both you and your customers are registered for VAT and your customer is also registered for the Construction Industry Scheme (CIS); your customer will sell on the services in question, i.e. the usual situation of a subcontractor working for a contractor.

Tip. You should also check that the work you carry out is included in the CIS; some services are excluded, e.g. repairing machinery and equipment.

What is an end user?

An “end user” is a VAT and CIS-registered business which buys construction services from builders “for any purpose other than making further supplies of specified services”. In other words, the services you supply to those customers are not sold on by them - normal VAT rules will apply.

New guidance

HMRC issued a new manual on 2 April 2025: VAT Reverse Charge for Building and Construction Services. The manual is clear that it’s the responsibility of customers to tell their suppliers if they are end users and should be charged VAT:

“The reverse charge does not apply for supplies…to end users when the end user tells their supplier or building contractor in writing that they are an end user. The buyer can choose not to notify their supplier or building contractor of their end user status, in which case the reverse charge will apply to the supply.”

If the reverse charge is relevant, it also applies to materials you sell as part of your work. You cannot issue a separate invoice for materials and charge VAT. They are part of a single supply of labour and materials.

If you sell construction services to CIS and VAT- registered customers, it would be sensible to include a clause in your contract or letter of engagement along the lines of: “We will assume you are an end user for the purpose of the reverse charge regulations and charge you VAT on our invoices. You must advise us if you are not an end user and we will apply the reverse charge instead.”

Potential benefits

The advantage of this approach is two-fold: firstly, you are playing safe by charging VAT on your supplies, taking away the risk that HMRC will come knocking at your door if you have incorrectly applied reverse charge accounting to a supply; secondly, you will collect 20% VAT from your customers, which will boost your cash flow, i.e. the time difference between getting paid and then accounting for output tax on a return up to three months later.

The cash-flow advantage is further extended if you use the cash accounting scheme when output tax is declared when your customers pay.