What is the VAT domestic reverse charge for construction?

Since 1 March 2021, a VAT-registered subcontractor doing CIS work for a VAT-registered contractor does not charge VAT. The contractor accounts for it to HMRC instead. It still applies in October 2026, unless the customer is an end user.

The VAT domestic reverse charge moves the job of paying VAT on building work from the supplier to the customer. It only matters if you are VAT registered. Most businesses must register once taxable turnover in the last 12 months goes over £90,000. If you are not registered, you never charge VAT, so nothing changes for you.

When the reverse charge applies

GOV.UK says you must use it when all of these are true:

• you are VAT registered in the UK and supply building and construction services
• your customer is VAT registered in the UK
• the payment is reported under the Construction Industry Scheme (CIS)
• the work is standard or reduced rated, not zero rated
• you are not an employment business supplying staff
• your customer has not told you in writing that they are an end user or intermediary supplier

The services covered are the same as CIS construction operations. Work outside CIS, such as installing burglar alarms, signwriting, or delivering materials on their own, uses normal VAT rules.

Who it applies to

An end user is a business that is VAT and CIS registered but does not sell the building work on. Building contractors are not usually end users. HMRC's technical guide says that when a builder works for a homeowner, the builder still makes onward supplies, so the subcontractors working for that builder still use the reverse charge.

How it works in practice

Say you are a VAT-registered electrician and you invoice a main contractor £10,000 for supply and fix. Without the reverse charge you would add £2,000 VAT and pay it to HMRC. Under the reverse charge:

• your invoice shows £10,000, the VAT rate or the £2,000 VAT due, the words "reverse charge" with a note such as "Customer to pay the VAT to HMRC", and a total payable of £10,000
• on your VAT return you enter the net £10,000 sale, but no output tax
• the contractor accounts for the £2,000 and reclaims it on the same return, subject to the normal rules
• you still reclaim VAT on your own materials and costs

When goods and services are part of one supply-and-fix job, the reverse charge covers the whole invoice. Separately, CIS is still deducted from the labour part of your invoice as usual.

What this means for you

The big change is cash flow. You no longer hold your customers' VAT between being paid and filing, and you still pay VAT on your purchases, so you may find HMRC owes you on each return. GOV.UK says you can apply to move to monthly VAT returns through your online VAT account to get repayments sooner.

Two schemes are affected. You cannot use the Cash Accounting Scheme for reverse charge sales. If you use the Flat Rate Scheme, reverse charge sales are left out of your flat rate turnover, and HMRC's guide says you should consider whether the scheme still suits you.

Steps to apply the reverse charge correctly

1. Before invoicing, check your customer's VAT number and CIS registration, and ask whether they are an end user.
2. If they confirm in writing that they are an end user or intermediary supplier, charge VAT normally and keep the letter.
3. Otherwise, issue a reverse charge invoice that shows the VAT rate or amount, the words "reverse charge" and wording such as "VAT Act 1994 Section 55A applies", and leave VAT out of the total.
4. Make sure your software records reverse charge sales without output tax.
5. On your VAT return, include the net sale but no VAT on it, and keep reclaiming VAT on your costs.
6. If you are regularly owed money by HMRC, consider monthly VAT returns.

Use the free MTD check to see when Making Tax Digital for Income Tax starts for you, and see the trades section for more on VAT and CIS.