The VAT domestic reverse charge has applied to most building and construction services since 1 March 2021. If you supply services that fall within the Construction Industry Scheme to a customer who is registered for both VAT and CIS, and the work is standard or reduced rated, you do not charge VAT. Your customer accounts for it to HMRC instead. The main exception is where the customer confirms in writing that they are an end user or intermediary supplier.

What is the VAT domestic reverse charge for construction?

Normally a subcontractor adds VAT to its invoice and pays it over to HMRC. Under the domestic reverse charge the supplier does not charge VAT. The liability shifts to the customer, who declares the VAT as output tax on its own return and, in most cases, reclaims the same amount as input tax. The net result for HMRC is the same, but the VAT never passes between the two businesses. The rule applies to invoices with a tax point on or after 1 March 2021.

Do I need to use reverse charge VAT?

You must apply the reverse charge when all of these conditions are met:

  • the services are within the scope of the Construction Industry Scheme;
  • the supply is standard or reduced rated for VAT;
  • your customer is registered for VAT and for CIS;
  • you are not an employment business supplying workers; and
  • your customer has not told you in writing that they are an end user or intermediary supplier.

If any one of these is missing, you invoice with VAT in the normal way. So work for homeowners, customers who are not VAT registered, and zero rated work such as most new build housing all fall outside it. If you are unsure whether a job is within CIS, see our guide to the Construction Industry Scheme.

HMRC expects you to ask business customers whether they are registered for VAT and CIS and whether they are an end user. If your business is plainly set up for domestic consumer work, you do not need to check each time.

Which construction services are excluded?

HMRC lists several supplies that stay outside the reverse charge, including hire of goods without an operator (which is not within CIS), supplies of staff by employment businesses, and connection or disconnection work carried out by a utility company on its own network.

What is the end user exclusion?

An end user is a business registered for VAT and CIS that does not make onward supplies of the construction services it receives. An intermediary supplier is a business registered for VAT and CIS that is connected or linked to an end user and passes the services on to it without material change.

If your customer is an end user or intermediary supplier, the reverse charge does not apply and you charge VAT normally. The key point is that the customer must tell you in writing, for example by letter, email or a clause in the contract. Once you have that notification you do not need to ask for further details. If you have not received it, and the other conditions are met, you must use the reverse charge.

How does the 5% disregard rule work?

Where a single supply mixes reverse charge services with other work, and the reverse charge element is 5% or less of the total value, it can be disregarded and the whole supply taxed normally. This only works if both supplier and customer agree at the start of the contract, based on the overall contract value.

A separate 5% disregard lets a customer who is mainly an end user, but passes on less than 5% of the services by value, still issue an end user declaration.

What wording should go on a reverse charge invoice?

A reverse charge invoice must include everything a normal VAT invoice needs, show the VAT rate or amount, and state that the reverse charge applies and the customer must account for the VAT. HMRC gives these examples:

  • “Reverse charge: VAT Act 1994 Section 55A applies”
  • “Reverse charge: S55A VATA 94 applies”
  • “Reverse charge: Customer to pay the VAT to HMRC”

If your accounting software cannot show the VAT amount, add the wording “customer to account to HMRC”. If you charged VAT when the reverse charge should have applied, correct it with a credit note that shows the reverse charge applies and reduces the VAT the customer pays.

How do I show reverse charge on my VAT return?

As the supplier, you include the net value of the sale in box 6 and do not enter any output tax in box 1 for it.

As the customer, you enter the VAT due on the reverse charge purchase in box 1 as output tax, reclaim it in box 4 subject to the normal recovery rules, and include the net purchase value in box 7. For construction services you do not add anything to box 6 for the purchase.

How does reverse charge VAT work with CIS deductions?

The two schemes run side by side. The contractor still makes CIS deductions, and these are calculated on the payment excluding VAT. Because a reverse charge invoice carries no VAT to pay over, the subcontractor receives the net invoice value less any CIS deduction.

How will the reverse charge affect my cash flow?

You no longer receive VAT from your customers, but you still pay VAT on materials, tools and overheads. Businesses that mainly supply under the reverse charge often move into regular repayment positions with HMRC. HMRC allows you to apply to move to monthly VAT returns through your online VAT account, so repayments arrive sooner.

You also cannot use the cash accounting scheme for supplies you buy or sell under the reverse charge. See our VAT cash accounting scheme guide for how the rest of your turnover is treated.

Can I use the Flat Rate Scheme with the reverse charge?

Reverse charge supplies are not accounted for under the Flat Rate Scheme. If you make reverse charge sales, you leave their value out of your flat rate calculation. If you receive reverse charge services, you account for and recover the VAT on the same return. HMRC says flat rate users making reverse charge supplies should consider whether the scheme is still useful. Our VAT Flat Rate Scheme guide explains how to review that.

What happens if HMRC opens an enquiry into my reverse charge VAT?

HMRC checks reverse charge compliance on both sides: suppliers who charged VAT wrongly, and customers who failed to declare output tax. Typical problems are missing end user confirmations, wrong invoice wording and incorrect box entries. Your accountant’s time is billed whether or not any tax turns out to be due.

Solar Protect tax investigation insurance covers up to £100,000 of accountant’s fees with no excess, including VAT enquiries. Read how the cover works on our tax investigation insurance page. When you are ready, you can get a quote in a few minutes.

Reviewed by Matthew Bartlett, Director, Solar Protect. Last reviewed 29 September 2026. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.