Scaffolding at sunset

Domestic reverse charge for building services

The impact for charities

Josie Morgan Jones, Executive, VAT
Scaffolding at sunset

In June 2020, the government announced that implementation of the domestic reverse charge (DRC) on building services was being delayed until March 2021 due to the impact of COVID-19.

The DRC applies to services within the scope of the Construction Industry Scheme (CIS) between CIS registered sub-contractors and contractors, and requires the customer to account for the VAT rather than the supplier, unless the services are supplied to a contractor who is an end user.

Registered charities are normally exempt from the CIS, and all non-profit organisations will normally be an end user, so the reverse charge should not apply to most services. However, we are aware that a number of organisations have received a letter about how to prepare for the DRC and as such, many organisations are seeking clarity on whether it applies to them.

We note that this letter does not cover the intermediary rules, which, if met, means that the DRC does not apply - the intermediary rules apply to services to organisations that are connected or linked to the end user. For businesses to be connected or linked, they must either:

  • share a relevant interest in the same land where construction works are taking place (e.g. a tenant doing works for a landlord)
  • be part of the same corporate group.

Where the intermediary rules apply, all connected organisations are treated as the end user and so the reverse charge does not apply to these services.

Therefore, where a charity has a wholly owned subsidiary, such as a design and building company, the building services provided between these connected parties is not subject to the DRC. Consequently, any requests to account for the reverse charge on invoices should be queried and organisations should inform the supplier of their end user status.

To understand whether your building services are subject to the DRC, please refer to the below diagram:

DRC flowchart 

For more information on the domestic reverse charge, read our recent insight.

If you would like to discuss this further, please contact Rob Warne or your usual Crowe contact.

Contact us

Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services