End users and the VAT reverse charge

What is an end user for the VAT reverse charge?

It is a business that buys construction work and uses it, rather than passing it on to a customer of its own. HMRC’s manual: an 'end user' is a taxable person who buys specified services and uses those services for any purpose other than making further supplies of specified services.

It has to meet all three of HMRC’s conditions. A business qualifies where it is VAT registered, is obliged to process its payments to subcontractors through the CIS, and does not make onward supplies of the building and construction services that they receive.

Do not go by what the words sound like. HMRC warns that the term 'end user' has a specific legal meaning and should not be confused with any other uses of the term 'end user'. The last customer in the chain is not automatically the end user: There will not always be an end user (for reverse charge purposes) in each construction supply chain.

Can a building contractor be an end user?

Normally not, because a contractor passes the work on to its own customer. The manual says: Building contractors are not end users because they make onward supplies of construction services. The GOV.UK technical guide puts it a little more softly: Building contractors are not usually end users because they make onward supplies of construction services.

Working for a homeowner does not change that. In HMRC’s example, if services are provided to a private domestic customer, the reverse charge does not apply because the customer will not be VAT registered. This does not mean that the contractor supplying the householder becomes the end user. So subcontractors working for that contractor still apply the reverse charge.

What is an intermediary supplier?

It is a business that buys construction work and passes it, unchanged, to an end user it is linked to. It gets the same treatment as the end user. HMRC’s manual: Intermediary suppliers are VAT and CIS registered businesses that are connected or linked to an end user, and are resupplying specified supplies they receive to that end user without material alteration or further processing.

To be linked to the end user, the business must either:

• have a relevant interest in the same land where the construction works happen, such as a landlord and tenant, or
• be part of the same corporate group or undertaking.

Source: HMRC, VATREVCON33300.

Where both notify, neither supply in the chain is reverse charged: The reverse charge will therefore not apply to the supply to the intermediary, nor to the supply from the intermediary to the end user, provided both have notified their immediate supplier of their end user or intermediary status. An intermediary does not need a separate form of words either: Intermediary suppliers can refer to themselves as end users when notifying their suppliers.

Why does end user status matter?

Because the reverse charge does not apply to work for an end user, so the supplier charges VAT on the invoice in the normal way. HMRC’s manual: The reverse charge does not apply for supplies (which would otherwise be subject to the construction reverse charge) to end users when the end user tells their supplier or building contractor in writing that they are an end user.

It exists for businesses that are caught by CIS but are really just customers. HMRC records that although these businesses are caught by the CIS, they are often infrequent users of construction services (e.g. housing associations) and applying the reverse charge for a small amount of their supplies would represent a large administrative burden.

It only matters where the reverse charge would apply in the first place: somebody who is not required to report payments through the CIS does not need to consider whether or not they qualify as an end user because the reverse charge would not apply anyway. Our main guide covers when the reverse charge applies.

How does a customer confirm end user status?

In writing, to each supplier. HMRC’s manual: Notification can be paper, electronic, or within the terms of the contract; some form of written understanding that shows the supply is to an end user. The GOV.UK technical guide says the customer can send it:

• by post
• by email
• in a contract

Source: GOV.UK, VAT reverse charge technical guide, which adds: You should keep this as part of normal business records and make clear what supplies are covered.

HMRC suggests wording the customer can copy into a letter or email. It is set out in full, with an example, on our reverse charge invoice guide.

One notice can cover future jobs with the same supplier. This notification can reasonably be considered valid for future supplies, provided no communication precluding this has subsequently taken place. But if the notice names one contract, this should not be treated as a 'rolling' notification for all future contracts. Our invoice guide covers what the invoice should say.

Both sides keep a copy, the customer and the supplier. For the supplier, HMRC’s manual says: A supplier who has not applied the reverse charge because their customer has notified their end user status would also be expected to keep a copy of this notification and be able to produce it on the request of an officer of HMRC.

Can a supplier put end user status in its terms and conditions?

Yes. HMRC’s manual says: A supplier can include a statement in their terms and conditions to say they will assume that their customer is an end user or intermediary supplier unless they say they are not. The customer then has to speak up if they are not an end user, rather than you chasing them for a notice.

It counts once the customer signs a contract with those terms in it: Where the customer has signed a contract where such a provision is included in the terms and conditions, this means they have provided a written end user notification.

What should a supplier do without written confirmation?

Apply the reverse charge, even if you think the customer is an end user. HMRC’s manual: If a supplier believes their customer is an end user but the customer has not provided a written end user notification, they should still apply the reverse charge rather than charge VAT under normal rules. This is because the obligation to notify end user status lies with the customer.

You can ask for it. The technical guide says: You can write to your customer to ask them to confirm they’re an end user or an intermediary supplier. Once you have it, you do not need to check anything else: Once an end user notification has been made it is not necessary for the contractor to ask for any further details like VAT and Construction Industry Scheme registration status.

The risk of a bad notice sits with the customer. The technical guide says: If a written notification is not made correctly the customer will be liable for accounting for the VAT that should have been charged under the reverse charge.

Does a customer have to be treated as an end user?

No, it is their choice. A customer who is eligible to be treated as an end user is not obligated to provide an end user notification; instead they can choose not to provide such a notification in which case the reverse charge will be applied as normal. They can also decide supplier by supplier: A customer can choose to be treated as an end user in its dealings with one supplier, and choose not to be treated as an end user in its dealings with another supplier.

Two businesses in the same chain can choose differently. On landlords and tenants, HMRC says they are optional, so in landlord and tenant situations where the businesses might be totally separate in all other respects, there may be situations where they make different decisions. In its example, the landlord is not obliged to opt to be an intermediary supplier and can still receive the specified supplies under the reverse charge where the tenant opts to be an end user.

Who is and is not an end user?

These examples all come from HMRC’s manual. In each case where the business can be an end user, it still has to tell its supplier in writing.

Usually end users

• Housing associations and other occasional buyers of building work that are caught by CIS, which is who the rule was made for.
• Councils and other public bodies. The end user exclusion will usually apply to supplies to public bodies.
• Utility companies, where the work is being carried out during construction, repair or alteration of the utility company's own assets.
• A company that builds and leases the building back to the landowner. The private company is the end user for reverse charge purposes.
• A group company that receives the work from another company in its group. In HMRC’s example, company A buys the work and re-charges it to company B: In this scenario, A is the intermediary supplier and B is the end user.

Not end users

• A building contractor working for a client, including a homeowner, because it passes the work on.
• A contractor doing snagging work for free. Although contractors may not charge their customers for carrying out the snagging works, it does not mean that they then qualify as end users.
• A public body selling the work on. if the public body is acting on a commercial basis, and selling on the construction services, the end user exclusion will not apply.
• A developer after it sells the freehold. In a “golden brick” sale, the sale of the freehold will mean that the developer no longer qualifies for end user status from the date of the sale.

Source: HMRC’s construction reverse charge manual, VATREVCON33100 to 33800.

A worked chain: a housing association hires a main contractor to refit its flats, and the contractor hires an electrician. If the housing association sends the contractor an end user notice, the contractor charges it VAT as normal. The contractor is not an end user, so the electrician applies the reverse charge on its invoice to the contractor.

Other questions about end users