The VAT domestic reverse charge for construction

The domestic reverse charge changes who pays VAT to HMRC on building work between VAT-registered businesses. Get it wrong and either you or your customer ends up owing VAT that was never collected. Here is how it works, based on HMRC guidance checked on 12 October 2026.

What is the domestic reverse charge, in short?

Normally, a VAT-registered supplier adds VAT to the invoice, collects it from the customer and pays it to HMRC. Under the domestic reverse charge, which has applied to building and construction services since 1 March 2021, the supplier does not add VAT. The customer works out the VAT, declares it on their own VAT return and, in most cases, reclaims the same amount straight back. HMRC brought it in to stop fraud where VAT was collected but never paid over.

For most trade businesses that means: if you are a VAT-registered subcontractor working for a VAT-registered contractor under CIS, your invoices go out without VAT added.

Who does the reverse charge apply to?

GOV.UK says you must use the reverse charge as a supplier when all of these are true:

• you are VAT registered in the UK,
• your customer is VAT registered in the UK,
• the payment is reported under the Construction Industry Scheme,
• the services are standard rated (20%) or reduced rated (5%),
• you are not an employment business supplying staff, and
• your customer has not confirmed in writing that they are an end user or intermediary supplier.

End users and intermediary suppliers

An end user is a VAT and CIS registered business that does not sell on the building services it buys, such as a developer or a business refitting its own premises. An intermediary supplier is a VAT and CIS registered business connected or linked to an end user. If either tells its supplier in writing, the reverse charge does not apply to that supply, and the supplier charges VAT normally. HMRC says that if the written notice is not made correctly, the customer will be liable.

The rules are the same across England, Scotland, Wales and Northern Ireland.

How do you apply the reverse charge, step by step?

If you supply the work (subcontractor)

1. Check your customer's VAT number and CIS status using HMRC's online checks. If a contractor does not show up, ask them to confirm they report under CIS.
2. Ask whether they are an end user or intermediary supplier, and keep any written confirmation on file.
3. Make sure your software can issue reverse charge invoices.
4. Invoice without adding VAT. Show the net price, the VAT rate and the VAT the customer must account for, plus wording such as "Reverse charge: Customer to pay the VAT to HMRC".
5. On your VAT return, do not include output VAT for these sales. Include only the net value of the sale.
6. Consider monthly VAT returns. You will usually be reclaiming more VAT than you collect, so monthly returns get refunds to you faster.

If you buy the work (contractor)

1. Check the invoice shows the reverse charge correctly.
2. Add the VAT shown on the invoice to the output tax on your VAT return.
3. Reclaim the same VAT as input tax, subject to the normal rules. For most contractors the two cancel out.
4. Deduct CIS from the labour part as usual. VAT never goes into the CIS calculation.

What does it cost, and are there deadlines?

The reverse charge has no fee and no deadline of its own. It follows your normal VAT return dates. The real cost is cash flow. Before 2021, a subcontractor held on to the VAT collected for up to three months before paying it to HMRC. Now there is no VAT to hold, while you still pay VAT on your own materials, van and tools. Many subcontractors move from paying VAT to receiving a refund each quarter. Switching to monthly VAT returns shortens that wait.

Two VAT schemes do not work with the reverse charge:

• Flat Rate Scheme: HMRC says reverse charge supplies are not accounted for under the scheme. Our Flat Rate VAT Scheme guide shows when it still makes sense, and our VAT registration guide for tradespeople covers the alternatives.
• Cash Accounting Scheme: it cannot be used for reverse charge sales or purchases, though you can keep using it for your other work.

HMRC applied a "light touch" to honest mistakes in the first 6 months after the start. That grace period has long ended, so errors can now be assessed in the usual way.

Worked example: a VAT-registered plasterer

Priya is a VAT-registered plasterer, registered for CIS at 20%. She does £10,000 of labour-only plastering for a VAT-registered main contractor.

Priya ends up with the same £8,000 after VAT either way, but now she never holds the £2,000. If she bought £1,000 of tools and fuel that quarter with £200 VAT, she reclaims that £200 from HMRC rather than offsetting it.

Example invoice wording

"Plastering labour, Unit 4: £10,000.00. VAT at 20%: £2,000.00, reverse charge: Customer to pay the VAT to HMRC. Amount due: £10,000.00." Our free invoice templates include a reverse charge version in the Excel file.

What are the common mistakes?

• Applying the reverse charge to homeowners. Domestic customers always get normal VAT.
• Applying it when the customer is an end user who has told you so in writing. Keep those letters on file.
• Adding VAT to the total anyway. The customer then pays VAT twice, once to you and once to HMRC.
• Missing the wording on the invoice. The invoice must make clear the reverse charge applies.
• Staying on the Flat Rate Scheme when most of your work is now reverse charged.
• Forgetting about cash flow. Budget for paying VAT on purchases before you get it back.
• Not agreeing the 5% disregard up front. HMRC says it must be agreed from the start of the contract, not invoice by invoice.

What software helps with reverse charge VAT?

You need software that can do three things: issue reverse charge invoices with the right wording, post the figures correctly on your MTD VAT return, and handle CIS deductions on the same invoice. Most UK accounting packages do this, but job management apps vary, so check before you switch. We compare Xero, QuickBooks, Sage and FreeAgent, and which trade apps link to them, in our accounting software for tradesmen guide.