VAT
The VAT domestic reverse charge, explained for trades
It is the rule that stops VAT being collected down a subcontract chain. Get it wrong and you either hand HMRC's money to a contractor, or you invoice VAT that your customer refuses to pay.
What the reverse charge actually does
Normally you charge VAT, collect it and pay it to HMRC. Under the domestic reverse charge for building and construction services, the customer accounts for the VAT instead. You invoice the net amount only, and note the VAT they must declare. Nothing about your prices changes — only who hands the VAT to HMRC.
When it applies
All of the following need to be true:
- The supply is construction services reportable under CIS.
- Both you and the customer are VAT registered in the UK.
- The customer is CIS registered.
- The customer is not an end user or intermediary supplier.
- The supply is standard rated (20%) or reduced rated (5%) — not zero rated.
In practice: subcontractor invoicing a main contractor, reverse charge. Anyone invoicing a homeowner, normal VAT.
The end user exemption
If your customer is the party the building work is ultimately for — the owner, landlord or developer — they are an end user and you charge VAT normally. Get their end user statement in writing before you invoice, and keep it on file. Without it, the safe assumption is that the reverse charge applies.
What your invoice must show
- All the usual VAT invoice details, including your VAT number.
- A clear statement that the reverse charge applies.
- The VAT rate, or the VAT amount, that the customer must account for.
- A total due that excludes that VAT.
Example line: "Reverse charge: VAT Act 1994 Section 55A applies. Customer to account for VAT to HMRC at 20% (£560.00)."
On your VAT return
As the supplier you report the net sale in box 6 and nothing in box 1 — you did not charge output VAT. As the customer you declare the VAT in box 1 and, subject to normal rules, reclaim it in box 4, with the net purchase in box 7.
Because you stop holding VAT you used to collect, a lot of subcontractors move to monthly VAT returns to keep cash flow smooth. Worth checking whether that suits you.
Reverse charge and CIS together
They are separate rules that often apply to the same invoice. CIS deducts tax from the labour element; the reverse charge moves VAT to the customer. Show both clearly and separately so the contractor's accounts team has nothing to query.
Common questions
Does the reverse charge apply to work for homeowners?
No. Work for a private homeowner or any customer who is not VAT and CIS registered is normal VAT. You charge VAT as usual.
What wording must go on the invoice?
State that the reverse charge applies and that the customer must account for the VAT, for example: 'Reverse charge: customer to pay the VAT to HMRC. VAT Act 1994 Section 55A applies.' Show the VAT rate or the VAT amount that the customer must account for, but do not add it to the total due.
What is an end user and why does it matter?
An end user is a VAT and CIS registered customer who is not making an onward supply of construction services — typically the building's owner or a developer. Supplies to an end user fall outside the reverse charge, so you charge normal VAT. They must confirm end user status in writing, and you should keep that confirmation.
Does the reverse charge cover materials?
Yes, where the materials are supplied as part of the construction services on the same invoice. Unlike CIS, the reverse charge is not labour-only.
This is general guidance, not tax advice. Check HMRC's reverse charge guidance or your accountant for your own position.
Reverse charge without the head-scratching
Telaro lets you flag a job as reverse charge, keeps the VAT out of the total and prints the required wording on the PDF automatically.
Create your account