VAT Domestic Reverse Charge for Construction: A Guide

The VAT domestic reverse charge changed how construction businesses handle VAT in March 2021, and it still catches people out. Instead of the supplier charging VAT and paying it to HMRC, the customer accounts for it themselves. Get it wrong in either direction — charging VAT when you shouldn't, or not charging when you should — and both parties' VAT returns stop matching.

Here's when the reverse charge applies, the one big exception (end users), the exact wording your invoice needs, and how it sits alongside CIS.

What the Reverse Charge Is

Normally, a VAT-registered supplier adds VAT to their invoice, collects it from the customer, and pays it to HMRC. Under the domestic reverse charge for construction, that flips: the supplier does not charge VAT, and the customer accounts for both the output and input VAT on their own return.

It was introduced to tackle "missing trader" VAT fraud in construction supply chains. The rules "changed from 1 October 2020 to 1 March 2021" — so the charge has applied since 1 March 2021.

The net effect for a typical subcontractor: you invoice for the work without adding VAT, and you state on the invoice that the customer must account for it.

When the Reverse Charge Applies

The reverse charge applies to a supply of construction services when all of these are true:

1. Both you and your customer are VAT-registered
2. The supply is reported under CIS (it's construction work within the scheme)
3. The work is standard-rated or reduced-rated for VAT (not zero-rated)
4. Your customer is not an end user (and hasn't given end-user notification)

If any one of these fails, you charge VAT the normal way. Two of the most common reasons it doesn't apply are: the customer isn't VAT-registered, or the customer is an end user.

The Key Exception: End Users

This is where most confusion lives. An end user is the business at the end of the supply chain — they're having the work done for themselves, not to supply it onward. HMRC defines an end user as a business, or group of businesses, that:

• are VAT and Construction Industry Scheme registered
• do not make onward supplies of the building and construction services that they receive

The crucial rule: "the reverse charge does not apply for supplies to end users when the end user tells their supplier or building contractor in writing that they're an end user."

So the reverse charge is switched off by written notification from the end user. Until they tell you in writing, you apply the reverse charge if the other conditions are met. HMRC even publishes suggested wording an end user can use:

"We are an end user for the purposes of section 55A VAT Act 1994 reverse charge for building and construction services. Issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge."

If you receive that notification, you issue a normal VAT invoice. If you don't, and the other conditions are met, you apply the reverse charge.

When the Reverse Charge Does NOT Apply

Beyond end users, the reverse charge does not apply when:

• The customer is not VAT-registered
• The customer gives written end-user notification
• The customer gives written intermediary supplier notification
• The supply is from an employment business supplying staff or workers
• The construction element is 5% or less of the total value of the supply

In all of these, charge VAT in the normal way.

What Your Invoice Must Say

When the reverse charge applies, your invoice must make clear that the customer is responsible for accounting for the VAT. In practice that means:

• Do not add a VAT amount to the total
• Show the VAT rate that would have applied (so the customer knows what to account for), or state the amount of VAT to be accounted for
• Include a clear note such as "Reverse charge: customer to account for the VAT to HMRC" or words referencing the reverse charge and section 55A VAT Act 1994

Your accounting software should support reverse-charge invoices — most modern packages have a reverse-charge VAT code that handles the presentation and the VAT return entries.

How It Interacts With CIS

The reverse charge piggybacks on CIS: it only applies to work that's reportable under the Construction Industry Scheme. So on most VAT-registered CIS jobs, you're dealing with both at once — CIS deductions on the labour portion, and the reverse charge on the VAT.

A worked example for a VAT-registered subcontractor invoicing a VAT-registered contractor (not an end user):

Item	Amount
Labour — 5 days at £220/day	£1,100
Materials	£400
Subtotal	£1,500
CIS deduction at 20% on labour (£1,100)	−£220
VAT (reverse charge — not added)	£0
Net payment due	£1,280
(Customer accounts for £300 VAT — 20% of £1,500 — on their return)

The contractor pays £1,280, sends the £220 CIS deduction to HMRC, and accounts for the £300 VAT on their own return. The subcontractor's invoice carries no VAT line but states the reverse charge applies.

For the CIS side of this — registration, deduction rates, and how to lay out a compliant invoice — see our subcontractor invoice template guide and the full CIS payments guide.

Common Mistakes

Charging VAT to a contractor who isn't an end user. If the conditions are met, you should apply the reverse charge — adding VAT creates a mismatch.

Applying the reverse charge to an end user. Once they notify you in writing, charge VAT normally.

Waiting for verbal confirmation. End-user status is switched off by written notification, not a phone call.

Forgetting the reverse-charge wording. The invoice must state that the customer accounts for the VAT, or their return won't reconcile.

This is general guidance on the VAT domestic reverse charge, not tax advice. VAT rules are detailed and fact-specific — consult a qualified accountant or HMRC for your circumstances.

Sources

• VAT domestic reverse charge for building and construction services — GOV.UK
• VAT reverse charge technical guide — GOV.UK