VAT Reverse Charge
Construction Industry

Why Are Changes Needed?

The Government is introducing the VAT Reverse Charge to tackle “VAT fraud”. This is where business charge VAT for services provided and then do not pay that VAT to HMRC. The rules will change such that customers who receive the construction services pay the VAT directly to HMRC, rather than their supplier. This removes the risk of VAT fraud in the construction sector.

When Does This Change Come Into Effect?

Originally these changes were due to take effect in October 2019, however it was decided that more time was required to allow businesses to prepare for the changes and the date was pushed back to October 2020. Due to the Coronavirus Pandemic the implementation date is currently set at 1st March 2021 and this is unlikely to change.

Qualifying Criteria?

The VAT Reverse Charge applies to all UK VAT registered companies supplying building and construction services in the UK. The following criteria must also be met:

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

How Are Recruitment Agencies Affected?

HMRC recognises the difference between a company that provides “construction services” and one which provides “construction operations”, the latter being a company that supplies staff and the former providing construction services. HMRC confirm that the Reverse Charge does not apply to supplies of staff or workers by employment businesses and as such recruitment agencies may not need to be concerned with the changes.

Where workers are employed or otherwise engaged/paid by the employment business rather than the construction business that uses them to provide services it seems the Reverse Charge does not apply.

I Need More Information About The Changes

The full technical guidance can be found here:


Agencies working with JMK can be reassured that our CIS subcontractor agreement and agency agreements have recently been updated to ensure the appropriate definitions/terminology are used to ensure that the agency does not inadvertently fall within the remit of the change.

However, if your agency uses other umbrella companies you should speak to them to ensure that your contracts are appropriate and the changes do not affect you.

Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions. 

We have evolved to provide a range of expert services; such as Professional Employer Organisation (PEO), or Back Office Support (BOS) or Funding, becoming a leading provider to the contracting industry.

We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.

With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.

Have a look at the wide range of services our Professional Employer Organisation (PEO) or Back Office Support (BOS) can provide to you and your business, it is far more than just payroll and finance.

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