VAT domestic reverse charge for construction services – ‘end user’ declarations

Published by Rupert Moyle on 22 May 2024

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The VAT domestic reverse charge for construction services (DRCCS) was brought into UK law in March 2021.

In the main, most suppliers and customers are now familiar with these rules and are applying them correctly, but we have seen challenges by HMRC in respect of ‘end user’ declarations.  

As a reminder, the DRC rules were introduced to remove the potential for fraudulent activity in the building industry. Such a fraud might have occurred, for example, when a supplier charged VAT to a customer and did not pay that VAT to HMRC. The customer would have recovered the VAT, where VAT registered and therefore HMRC would have been out of pocket. The easiest way to prevent the fraud was to remove the requirement for subcontractors to charge VAT and instead, put the requirement to account for VAT onto the customer. This mechanism is known as the domestic reverse charge (DRC).  

The DRC rules are complicated and advice should be sought in specific cases, but the effect of the rules is to remove the need to charge VAT on relevant supplies in the supply chain with only an ‘end user’ being charged VAT. Each “customer” in the supply chain is responsible for accounting for VAT under the DRC.   

In a simple scenario where a Subcontractor works to a main contractor, the subcontractor should not charge VAT and the main contractor has to apply the reverse charge. This is a two-stage process:  

i) The main contractor treats the supply from the Subcontractor as if it were supplied by itself and charges itself VAT (the DRC) at the appropriate rate – 5% or 20%. This has to be paid to HMRC in the VAT return (Boxes 1 & 3). 

ii) As VAT will be charged to the end user, this DRC VAT is recoverable in the normal way (on the same VAT return) (Box 4).

This should be tax neutral and not create a VAT cost to parties in the chain. 

End user certification – HMRC challenges

The reverse charge does not apply to an end user who must issue an end user declaration to the contractor. The law states that this has to be in writing (letter/ email or in a contract).   

An issue we have encountered is where a contractor charged VAT on the understanding that the customer was an end user but, on further inspection, it became evident that the customer had not provided a declaration to the contractor. Perhaps it was verbally given (or just assumed). The reality is though that, notwithstanding the lack of a declaration, the customer is an end user. 

HMRC’s response to this scenario has been to assess the customer for VAT not declared as output tax under the DRC rules – i.e. as per stage i) above. This VAT has to be paid to HMRC – the VAT to be claimed back cannot offset the DRC charge (as per stage ii) above) as it has already been claimed.   

In our experience HMRC have not sought to address the position with the contractor – it is left to the customer to persuade the contractor that it has acted incorrectly and seek a credit note and repayment of the VAT from the contractor. Depending on timing this can mean having to pay the VAT twice for a period of time.   

From a technical standpoint, HMRC are correct in their treatment but it seems a little unfair when the reality was that the customer was an end user and both parties had understood that to be the case, but it was not notified in writing. To make matters worse HMRC have sought to penalise the customer for not accounting for VAT correctly, even though there is technically no net tax loss. Whilst clearly this is the position the DRC rules were brought in to counter and, of course, it is appropriate to ensure that the rules are followed, it still seems unfair to penalise the parties for acting in good faith. Had an end user notification been issued, VAT would have been charged and claimed back – there would be no tax loss. 

In any case the cost of dealing with HMRC and the contractors can be costly even without penalties being imposed.  


It is important to ensure that an end user declaration has been issued at the right time – if in doubt, check. Don’t get caught out by HMRC checking after the event as this can be costly. 

Contact us today to find out how our VAT team can help you. 

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