On the 1st of October 2019 HMRC are proposing changing the way VAT is charged between sub-contractors.

If you are a VAT registered contractor in the building industry “reverse charging” will apply to invoices between sub-contractors.

This means that the VAT charged on an invoice from a sub-contractor will be paid and accounted for by the contractor receiving the invoice.

The contractor supplying the invoice will receive payment less the VAT charged.

VAT charged to “end user” or non-VAT registered client will be invoiced/collected as normal.

Why are there changes?

The changes to be implemented are a result of VAT fraud found from VAT being charged on invoices but not being declared on VAT returns.

Who’s affected by this?

Building contractors in the CIS scheme supplying goods and or materials to intermediary contractors who then charge main contractors/clients or “end-users”

What this means for you, a sub-contractor

  • Not receiving VAT on your invoices. (but informing that the VAT that should have been paid is now a liability for the contractor receiving the invoice)
  • Potentially getting refunds from HMRC as your input tax on purchases may exceed the output tax on sales
  • Less cash flow as VAT paid from invoices that would have been paid up to three months after the original invoice is issued is now not available.
  • The excluding VAT outputs (box 6) will show the sale as normal

Intermediary contractors

  • The VAT shown on sub-contractor invoice is still claimed as an input tax (box 4) but it is also posted to the output tax (box 1) this is known as “reverse charge” giving a nil balance.
  • The excluding VAT inputs (box7) will show the sub-contractor payment as normal.
  • Any invoices issued to other intermediary contractors are subject to the “reverse charge” scenario (sub-contractors) above.
  • Main contractor/client “end user” invoices are issued as normal showing VAT charged and declared in (box 1 and box6)


It is the responsibility of any contractors to ascertain the status of the person/company whether they are an “end user” or intermediary contractor and charge VAT accordingly. Any doubts that a client is either not VAT registered or an “end user” should charge VAT in the normal way.

all VAT supplies including reduced rate/zero rated are included and the rate of VAT charged shown on the invoice supplied.

Flat rate and cash accounting cannot be used in this scheme and if you use these schemes it is advisable to check if cash flow is affected and change to the normal accrual accounting if it adversely affects your business.