In short: since 1 March 2021, subcontractors supplying building and construction services within the Construction Industry Scheme (CIS) to a VAT-registered contractor stop charging VAT. Instead, the customer accounts for the VAT to HMRC on their own return. Your invoice shows £0 VAT charged — you just state the amount the customer must account for. It only applies to B2B supplies of standard- or reduced-rated construction services; homeowners and "end users" are excluded.
How the reverse charge actually works
Normally, a supplier charges VAT and pays it over to HMRC. Under the domestic reverse charge that flow is reversed in one specific sense: the supplier of construction services invoices without VAT, and the customer (the contractor buying the service) declares the VAT as output tax on their own VAT return — and usually reclaims it as input tax in the very same return, making the transaction tax-neutral for a fully taxable business. HMRC introduced it to combat "missing trader" fraud, where subcontractors collected VAT and disappeared without paying it over.
Worked example: £13,000 subcontract
A VAT-registered subcontractor does £10,000 of labour plus £3,000 of materials for a VAT-registered main contractor, all standard-rated at 20%:
| Normal VAT | Reverse charge | |
|---|---|---|
| Net value of supply | £13,000 | £13,000 |
| VAT charged on the invoice | £2,600 | £0 |
| Contractor pays the subcontractor | £15,600 | £13,000 |
| VAT declared to HMRC by the supplier | £2,600 | £0 |
| VAT accounted for by the customer (box 1) | — | £2,600 |
| VAT reclaimed by the customer (box 4) | −£2,600 | −£2,600 |
The big change is cash flow: the subcontractor no longer holds £2,600 of VAT between invoice and return date. Subbies who consistently reclaim more VAT than they collect can apply for monthly returns so HMRC repays them sooner.
When to use it: the four-part checklist
Use the reverse charge only when all four conditions are met:
- The work is a construction service within CIS — building, altering, repairing, extending or demolishing structures; installing heating, lighting, air-conditioning, ventilation, power, water, drainage, sanitation or fire-protection systems; internal cleaning during construction; painting and decorating.
- Your customer is registered for VAT — verify their VAT number before issuing the invoice.
- The payment is reportable under CIS — i.e. it comes under the Construction Industry Scheme.
- Your customer is not an "end user" — they must be making an onward supply of construction services, not using the work themselves.
Fail any one of these and you charge VAT in the normal way. Zero-rated work — for example building a new dwelling — is always excluded, even between two VAT-registered firms.
Which services are covered — and which are not
Covered (reverse charge)
- Constructing, altering, repairing, extending, demolishing buildings or civil-engineering works
- Installing heating, lighting, air-conditioning, ventilation, power, water, drainage, sanitation and fire-protection systems
- Internal cleaning carried out during construction work
- Painting and decorating of internal or external surfaces
- Materials supplied as part of those services (supply-and-fix)
Excluded (charge VAT normally)
- Architects, surveyors and construction consultants (professional services)
- Supplying building materials on their own, with no services
- Installing seating, blinds, shutters or security systems (CCTV, alarms)
- Manufacturing components off-site and merely delivering them
- Work for homeowners or end users who have notified you in writing
Mixed supply? If your supply bundles covered and excluded services, the reverse charge applies to the whole supply — unless the reverse-charge element is 5% or less of the total value, in which case the "5% disregard" lets you apply normal VAT rules to everything.
End users and intermediary suppliers
The reverse charge exists to move VAT up the construction supply chain — so it stops when it reaches the top. If your customer uses the construction services for themselves rather than selling them onward (say, a retailer fitting out its own shop, or a landlord), they are an end user and you charge VAT normally. The same goes for connected "intermediary suppliers", such as a group company sharing the same premises. The customer must tell you in writing — an email, letter or a term in the contract is fine. If they don't notify you, apply the reverse charge by default and let them correct it.
How to word a reverse-charge invoice
Your invoice looks like a normal VAT invoice with two changes: the VAT charged is £0, and you add a statement telling the customer what they must account for. HMRC-acceptable wording:
"Reverse charge: customer to account for £2,600 VAT to HMRC at 20%. Net value of supply: £13,000. Total payable: £13,000."
Keep copies of how you checked the customer's VAT registration and any end-user notification — that is your evidence if HMRC asks why you did not charge VAT.
What the customer does on their VAT return
As the buyer, you treat yourself as both supplier and customer of the service for VAT purposes: include the VAT in box 1 (output tax) and, subject to the normal rules, reclaim it in box 4 (input tax), with the net value in boxes 6 and 7. Fully taxable businesses see no net cost — but forgetting the box 1 entry is exactly the kind of error that triggers an HMRC enquiry, so most accounting software now flags reverse-charge expenses automatically.
Common mistakes to avoid
- Charging VAT anyway. If you charge VAT wrongly, your customer may be unable to reclaim it — correct it with a credit note and reissue the invoice promptly.
- Reverse-charging a homeowner's job. Work for consumers is always normal VAT, 20% or 5%.
- No end-user evidence. Without written notification, you cannot safely charge normal VAT to a business customer.
- Splitting supply-and-fix invoices. Separating labour and materials on one job does not remove it from the reverse charge.
- Flat Rate Scheme confusion. Reverse-charge income stays out of your flat-rate turnover — see our Flat Rate Scheme guide for the rest of the scheme.
Frequently asked questions
Does the domestic reverse charge apply to materials as well as labour?
Yes, if the materials are supplied as part of a single supply of construction services — so-called supply-and-fix work. If you simply sell building materials without providing any construction services, that sale is a separate supply of goods and normal VAT rules apply.
My customer is not VAT-registered. Do I use the reverse charge?
No. The domestic reverse charge only applies between VAT-registered businesses where the payment falls within the Construction Industry Scheme. If your customer is not registered for VAT, or the work is for a homeowner, charge VAT in the normal way at 20% or 5% as appropriate.
What must I write on a reverse-charge invoice?
State clearly that the domestic reverse charge applies and show the rate and amount of VAT the customer must account for to HMRC — for example, "Reverse charge: customer to account for £2,600 VAT to HMRC at 20%". Do not add that VAT to the amount you charge: the invoice total excludes it.
Does the reverse charge apply to zero-rated construction work?
No. The reverse charge covers only standard-rated (20%) and reduced-rated (5%) supplies. Zero-rated work, such as constructing a new dwelling, is excluded and follows the normal zero-rating rules.
What is the 5% disregard?
A concession for mixed supplies. If you supply a mixture of services and the reverse-charge element is 5% or less of the total supply value, you can disregard it and apply normal VAT rules to the whole supply — for example supply-and-fit joinery where installation is a tiny part of the price.
Who counts as an "end user"?
A customer who receives the construction services for their own use rather than selling them on — for example a retailer building a shop for itself. If you are an end user, or an intermediary supplier connected to one, tell your supplier in writing and they will charge VAT normally instead of using the reverse charge.
I'm a subcontractor on the Flat Rate Scheme. What happens?
Reverse-charge sales are excluded from the Flat Rate Scheme. You do not pay your flat-rate percentage on them and they stay out of your flat-rate turnover; your customer accounts for the VAT to HMRC themselves. Your normal, non-reverse-charge sales remain within the scheme.
Does the reverse charge affect CIS deductions?
CIS tax deduction rules are unchanged. Contractors still verify subcontractors and deduct 20% or 30% from the labour element of the net payment — excluding VAT, since no VAT is charged — then pay deductions over to HMRC in the usual monthly CIS return.
Sources and review
This guide was checked against GOV.UK guidance, including VAT domestic reverse charge for building and construction services and the reverse charge technical guide, on 3 August 2026. The rules described have applied since 1 March 2021 and are current at the review date.
This guide is general information, not tax advice — construction VAT has edge cases, so confirm treatment with HMRC or your accountant before invoicing. See our disclaimer. Spot an error? Tell us and we'll fix it.