The VAT domestic reverse charge changed how VAT works between construction businesses, and it still trips people up. If you are VAT registered and working for another VAT-registered business in the building trade, this is the rule that decides who hands the VAT to HMRC. Here is the reverse charge in plain English: what it is, when it applies, and exactly what to put on your invoice.

The good news is that it does not change how much money the job is worth, and it does not change your CIS. It changes one thing: who accounts for the VAT. Get that straight and it is simple.

What is the VAT reverse charge?

Normally, if you are VAT registered, you add VAT to your invoice, collect it from your customer, and pay it to HMRC. Under the VAT domestic reverse charge for building and construction services, you do not add VAT to the invoice. Instead, your customer accounts for the VAT to HMRC themselves. You still show what the VAT would have been, but you do not charge it or collect it.

HMRC brought it in to stop VAT fraud in the construction chain, where a supplier would charge VAT, then disappear without paying it over. Moving the responsibility up the chain closes that gap.

When does the reverse charge apply?

The reverse charge applies when all of the following are true:

  • both you and your customer are VAT registered;
  • the work falls under the Construction Industry Scheme;
  • your customer is not the end user, meaning they are another business in the construction chain who will sell the work on, rather than the final customer;
  • the supply is standard or reduced rated for VAT.

In plain terms: if you are a subcontractor invoicing a contractor above you, and you are both VAT registered, the reverse charge almost certainly applies. If you are invoicing a private homeowner or a business that is the end user, it does not, and you charge VAT as normal.

The Sitewise app showing an invoice with labour, materials and CIS The Sitewise app showing net pay after CIS
In Sitewise: labour, materials and the CIS deduction are split on the invoice, and you can note the reverse charge, so the paperwork is right before you send.

End users and the exemption

The end user is the business or person who uses the building work rather than selling it on. A property developer having offices built for their own use, or a homeowner, is an end user, and normal VAT rules apply. An end user should tell you in writing that they are an end user, and then you charge VAT as usual. If you are not sure, ask, because getting this wrong means the invoice is incorrect.

A subcontractor checking paperwork on a phone on site
The reverse charge shifts who accounts for the VAT, not how much CIS comes off. Get the invoice wording right and it is straightforward.

What to put on a reverse charge invoice

A reverse charge invoice looks like a normal invoice with two differences: you do not add VAT to the total, and you add a clear note that the reverse charge applies. Include:

  • all the usual invoice details, plus your VAT number;
  • the VAT rate that applies to the work, shown clearly, even though you are not charging it;
  • a statement such as: "Reverse charge: customer to account for the VAT to HMRC.";
  • your labour and materials split as normal, so CIS is applied correctly.
You show the customer what the VAT is, but you do not collect it. They pay you the net, and they account for the VAT themselves.

How it works with CIS

The reverse charge and CIS sit side by side. CIS still comes off your labour exactly as before, and the reverse charge just changes the VAT treatment. So a subcontractor invoice under both might show labour and materials, the CIS deduction on the labour, no VAT added, and the reverse charge note. If you are still getting to grips with the deduction side, our guide on how to send a CIS invoice covers the labour and materials split in detail.

Keeping the two straight on every invoice is where good habits pay off. When your invoices are raised from the same place you logged the work, the labour, materials, CIS and VAT treatment all line up, and there is nothing to reconcile later.

The Sitewise app showing jobs each holding their own invoices
In Sitewise: every invoice sits on its job, so your VAT and CIS records are all in one place come return time.

Common reverse charge mistakes

  • Charging VAT when you should not, so the contractor pays VAT they then have to unpick.
  • Leaving off the reverse charge wording, so it is unclear who accounts for the VAT.
  • Assuming it applies to end users, when private customers and end users are charged VAT as normal.
  • Forgetting it does not change CIS, and getting the labour and materials split wrong as a result.

None of this is complicated once the invoice template is right. The trades who find it painful are usually the ones rebuilding each invoice from scratch. This is exactly the sort of thing Sitewise is built to take off your hands: raise the invoice from the job, with labour, materials and CIS already split, and the record kept for your VAT return. If you want to see how much the admin really costs, our piece on the real cost of construction admin puts a number on it.

How Sitewise helps

Take the admin off your hands.

Sitewise raises the invoice from the work you logged, splits labour, materials and CIS, and keeps every invoice on its job, so VAT and CIS records are ready when you need them.

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Frequently asked questions

What is the VAT domestic reverse charge for construction?
It is a VAT rule for building work between VAT-registered businesses in the construction chain. Instead of the supplier charging and collecting VAT, the customer accounts for it to HMRC directly. It applies to work covered by CIS where the customer is not the end user.
Do I still charge VAT under the reverse charge?
No. You do not add VAT to the invoice. You show what the VAT would be, add a note that the reverse charge applies, and the customer accounts for the VAT themselves. You are paid the net amount.
Does the reverse charge change CIS?
No. CIS is deducted from your labour exactly as before. The reverse charge only changes the VAT treatment, not the CIS deduction. Both can appear on the same invoice.
Who is an end user for the reverse charge?
An end user is the business or person who uses the construction work rather than selling it on, such as a homeowner or a developer building for their own use. Supplies to end users are charged VAT as normal. End users should confirm their status in writing.
What wording goes on a reverse charge invoice?
A clear statement that the reverse charge applies and the customer must account for the VAT, for example: 'Reverse charge: customer to account for the VAT to HMRC.' You should also show the VAT rate that applies, even though you are not charging it.
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How to send a CIS invoice (with the 20% worked out) → How CIS works for subcontractors: the plain-English guide →