Under the VAT domestic reverse charge, a VAT-registered subcontractor does not charge VAT on construction work done for a VAT-registered contractor. Instead, the contractor accounts for that VAT on its own VAT return and reclaims it in the usual way. The rule has applied since 1 March 2021 and it changes invoices, VAT returns and a subcontractor's cash flow. This guide explains when it applies and what both sides must do.
Key takeaways
- It applies to standard-rated and reduced-rated construction services that fall within the Construction Industry Scheme (CIS), including materials supplied with them.
- Both businesses must be VAT registered, and the customer must be CIS registered and passing the work on.
- The supplier invoices without VAT and states that the reverse charge applies.
- It does not apply to zero-rated work, to customers who are not VAT registered, or to end users who have confirmed their status in writing.
- It is separate from CIS deductions. Both can apply to one invoice.
What is the VAT domestic reverse charge?
Normally the business making a sale charges VAT, collects it from the customer and pays it to HMRC. A reverse charge flips that. The supplier charges no VAT, and the customer declares the VAT as output tax on its own return and reclaims it as input tax, subject to the normal rules. No VAT changes hands between the two businesses.
For building work, HMRC sets out the rules in its guide to when you must use the VAT domestic reverse charge. The services covered are broadly the same "construction operations" that fall within CIS, from building and repairs to decorating.
When the reverse charge applies
As a supplier, you must use it when all of the following are true:
- Your customer is registered for VAT in the UK.
- Payment for the work is reported within CIS.
- The work is standard-rated or reduced-rated.
- You are not an employment business supplying staff or workers. Labour-only subcontractors who take responsibility for the work are covered.
- Your customer has not told you in writing that they are an end user or intermediary supplier.
Where materials are supplied with the labour, HMRC treats the job as a single supply and the reverse charge applies to the whole invoice.
When it does not apply
- Zero-rated work, such as qualifying work on new build housing.
- Customers who are not VAT registered, including private homeowners.
- End users. These are VAT-registered businesses that use the building work themselves and do not sell it on, such as a business refitting its own premises. They must tell you in writing.
- Intermediary suppliers, which are businesses connected or linked to an end user, again confirmed in writing.
- Services outside CIS, such as the professional work of architects and surveyors.
If you think your customer is an end user but they have not confirmed it in writing, and they are VAT and CIS registered, HMRC says you should still apply the reverse charge. There is also a 5% disregard for some minor elements. The detail is in the VAT reverse charge technical guide.
Normal VAT invoice vs reverse charge invoice
| Normal VAT invoice | Reverse charge invoice | |
|---|---|---|
| Who charges VAT | The supplier adds VAT to the price | Nobody. The supplier charges the net amount only |
| Who pays HMRC | The supplier, on its VAT return | The customer accounts for the VAT on its own return |
| Invoice wording | Standard VAT invoice details | The same details, plus a note that the reverse charge applies and the VAT amount or rate the customer must account for |
| Supplier's cash flow | Holds the VAT until the return is due | Never receives the VAT |
What goes on the invoice
A reverse charge invoice must show everything a normal VAT invoice shows. Our guide to VAT invoice requirements lists those. In addition, it must make clear that the domestic reverse charge applies and that the customer has to account for the VAT. It must state how much VAT is due under the reverse charge, or the rate if the amount cannot be shown, without including that VAT in the amount charged.
The invoice must include the words "reverse charge". HMRC gives examples of acceptable wording, such as "Customer to pay the VAT to HMRC".
The cash flow effect on subcontractors
Before the reverse charge, a subcontractor collected VAT on every invoice and held it until the next VAT return. Under the reverse charge it never arrives. Payments coming in are smaller, while suppliers of materials, fuel and tools still charge VAT in the normal way.
A subcontractor whose sales are mostly reverse charge may find each VAT return produces a repayment from HMRC. HMRC lets these businesses apply to move to monthly returns through their online VAT account, so the VAT they have paid out comes back sooner. Two schemes are also affected. You cannot use the VAT Cash Accounting Scheme for reverse charge supplies, and they are left out of the Flat Rate Scheme calculation.
Step by step: applying the reverse charge
- Check the work. Is it a construction service within CIS, and is it standard-rated or reduced-rated?
- Check the customer's VAT number is a valid UK registration.
- Check the customer is CIS registered. If you cannot confirm it, ask them to confirm in writing that they report under CIS.
- Ask about end user status. Keep any written confirmation with the job file.
- Issue the invoice with no VAT charged, the reverse charge wording and the VAT amount the customer must account for.
- Supplier's VAT return: include the net value of the sale, with no output tax.
- Customer's VAT return: add the VAT to output tax and reclaim it as input tax under the normal rules. Do not enter the purchase as a sale.
Worked example (illustrative)
"Harlow Drylining Ltd", an illustrative example, is a VAT and CIS registered subcontractor. In October 2026 it invoices a main contractor, which is also VAT and CIS registered, for £5,000 of labour on an office refit. The work is standard-rated at 20% and the contractor is selling it on to the office owner, so the reverse charge applies.
VAT. The invoice shows £5,000 with no VAT charged, and the note "Reverse charge: customer to pay the VAT to HMRC. VAT at 20%: £1,000". The contractor adds £1,000 to the output tax on its VAT return and reclaims £1,000 as input tax on the same return. Harlow Drylining includes the £5,000 as a sale and declares no VAT on it.
CIS. Separately, HMRC has told the contractor to deduct at the standard CIS rate. 20% of the £5,000 labour is £1,000, so the contractor pays Harlow Drylining £4,000 and passes £1,000 to HMRC towards the subcontractor's tax. The two £1,000 figures match only because both rates happen to be 20%. They are different things.
Under normal VAT rules the invoice would have been £6,000 and the payment £5,000, with £1,000 of VAT held until the return was due. Now £4,000 arrives.
The company and figures are invented for illustration and are not a real client.
Common mistakes
- Charging VAT anyway. The customer should not pay it, and you will have to correct the invoice.
- Confusing it with CIS. See our guide to CIS deduction rates for how that side works.
- Accepting a verbal end user claim. It must be in writing.
- Splitting labour and materials to keep VAT on the materials.
- Not planning for the cash gap when moving from domestic jobs to subcontract work.
How we can help
We prepare VAT returns for construction businesses, check which invoices fall under the reverse charge and advise on monthly returns where repayments are regular. VAT returns start from £120 per quarter on a fixed fee, and we also run a separate CIS service. See our VAT returns service, view our pricing, or contact us to talk through your next invoice.
Frequently Asked Questions
What is the VAT domestic reverse charge for construction?
It is a rule that moves the job of accounting for VAT from the supplier to the customer on most construction services between VAT-registered businesses. The subcontractor invoices without VAT, and the contractor records the VAT on its own VAT return and reclaims it under the normal rules. It has applied since 1 March 2021.
Does the reverse charge apply to materials?
Yes, where materials are supplied together with construction services. HMRC treats labour and materials supplied on the same job as a single supply for VAT, so the reverse charge applies to the full value of the invoice. A supply of materials only, with no construction service, is outside the reverse charge and normal VAT rules apply.
Does the reverse charge apply to work for homeowners?
No. A private homeowner is not VAT registered, so the reverse charge cannot apply and you charge VAT in the normal way. The same is true for any customer who is not VAT registered, and for VAT-registered end users, such as a business having its own premises refurbished, who have told you so in writing.
Is the VAT reverse charge the same as a CIS deduction?
No. They are separate rules that can both apply to the same invoice. The reverse charge decides who accounts for the VAT. A CIS deduction is an advance payment towards the subcontractor's own tax and National Insurance, taken by the contractor from the labour part of the payment. One does not replace or reduce the other.
Can I use the Flat Rate Scheme with the reverse charge?
Not for the reverse charge supplies themselves. HMRC says reverse charge supplies are not accounted for under the Flat Rate Scheme, so you leave those sales out of your flat rate calculation. If most of your work is now reverse charge, it is worth checking whether the scheme still suits you, because it does not let you reclaim VAT on most purchases.
Related reading
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Schedule a consultation →Written by the Berber Accounts & Tax team, 124 City Road, London EC1V 2NX, United Kingdom.
Last reviewed: 10 October 2026.
This article is general information, not personal tax advice. Speak to a qualified accountant about your own circumstances before acting on it.