Reverse charge VAT for construction: how it works

Under the VAT domestic reverse charge, the customer, not the supplier, accounts for the VAT on most building and construction services. GOV.UK says it covers standard and reduced rate services where the customer is registered for VAT in the UK and the payment is reported within the Construction Industry Scheme (CIS) (GOV.UK). The supplier's invoice shows the VAT due but does not add it to the amount the customer pays, and the customer puts that VAT on its own VAT Return (HMRC technical guide: invoices). It applies to supplies with a tax point on or after 1 March 2021 (HMRC technical guide: how to account for the reverse charge).

Who it applies to

HMRC's technical guide says a supplier must use the reverse charge when all of these are true (HMRC technical guide: if you sell building and construction services):

• the customer is registered for VAT in the UK
• the services are within the scope of the Construction Industry Scheme
• the services are standard rated or reduced rated
• the supplier is not an employment business supplying staff or workers
• the customer has not confirmed in writing that it is an end user or an intermediary supplier

The services covered are the same as the "construction operations" in CIS, apart from workers supplied by employment businesses (GOV.UK: when you must use the reverse charge). Its list includes building, altering, repairing, extending and demolishing buildings or structures; installing heating, lighting, air-conditioning, ventilation, drainage or fire protection systems; painting and decorating; and work such as site clearance, excavation, laying foundations and putting up scaffolding (GOV.UK).

Some services are left out when they are supplied on their own. GOV.UK's list includes the professional work of architects and surveyors; making building materials, components or equipment, or delivering them to site; installing security systems such as burglar alarms and CCTV; installing seating, blinds and shutters; signwriting; and purely artistic works such as sculptures and murals (GOV.UK: when you must not use the reverse charge).

What to put on the invoice

HMRC's technical guide says a supplier using the reverse charge must (HMRC technical guide: invoices):

• show all the information a normal VAT invoice needs
• add a note making clear that the domestic reverse charge applies and the customer must account for the VAT
• state how much VAT is due under the reverse charge (or, if that amount can't be shown, the VAT rate), without including it in the amount charged to the customer

The VAT Regulations 1995 require these invoices to include the reference "reverse charge", and it gives these as examples of wording that meet the legal requirement (HMRC technical guide: invoices):

• "VAT Act 1994 Section 55A applies"
• "S55A VATA 94 applies"
• "Customer to pay the VAT to HMRC"

The legal basis is section 55A of the VAT Act 1994 (legislation.gov.uk: VAT Act 1994, section 55A(6)). The Treasury order that brings building and construction services under it is the Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019 (legislation.gov.uk: SI 2019/892).

If your accounting software can't show the amount of VAT due under the reverse charge, you must add wording to the invoice saying "customer to account to HMRC" for the reverse charge, and make sure the customer can tell which goods or services it covers (HMRC technical guide: if your accounting software cannot show the reverse charge). For a ready-made layout, see our CIS invoice template.

Worked example

These are example figures, not a quote. A subcontractor does £10,000 of standard-rated building work for a main contractor that is registered for VAT, the payment is reported within CIS, and the contractor has not said it is an end user. The UK standard VAT rate is 20% (GOV.UK: VAT rates), so the VAT on the job is £2,000.

Source: the rule comes from HMRC's guidance, GOV.UK: check when you must use the VAT domestic reverse charge for building and construction services, and the VAT reverse charge technical guide (both read 29 October 2026). The £10,000 job and the amounts in the table are our own worked example, not HMRC figures.

Under the reverse charge, the main contractor adds the £2,000 to the output tax total on its VAT Return and may reclaim it as input tax, subject to the normal VAT rules (HMRC technical guide: VAT on purchases). The subcontractor enters no output tax on the sale, only the £10,000 net value (HMRC technical guide: VAT on sales).

This example leaves out any CIS deduction. Under CIS, contractors deduct money from a subcontractor's payments and pass it to HMRC as advance payments towards the subcontractor's tax and National Insurance, which is separate from VAT (GOV.UK: Construction Industry Scheme).

When it does not apply

• Private householders. The reverse charge does not apply to work for a private domestic customer, because that customer will not be VAT registered (HMRC technical guide: end user).
• End users and intermediary suppliers. An end user is a business that is VAT and CIS registered and does not make onward supplies of the building and construction services it receives (HMRC technical guide: end user). The reverse charge does not apply once the end user tells its supplier this in writing, and an intermediary supplier connected or linked to an end user can do the same (HMRC technical guide: intermediary suppliers). Being an end user is optional (HMRC technical guide: choosing to be an end user). Without written notice, a supplier whose customer is VAT and CIS registered should still use the reverse charge (HMRC technical guide: supplies to possible end users).
• Employment businesses supplying workers. These are treated for VAT as supplies of staff, not construction services, so the reverse charge does not apply (HMRC technical guide: employment businesses). Labour-only subcontractors are different: the reverse charge does apply to their services (HMRC technical guide: labour only sub-contractors).
• Zero-rated work. The reverse charge applies to standard and reduced rate services only (GOV.UK). VAT Notice 708 explains when building work is zero rated.
• The 5% disregard. If the reverse charge part of a single supply is 5% or less of its whole value, it can be disregarded and normal VAT rules can apply (HMRC technical guide: 5% disregard). Both sides must agree this from the start of the contract, based on the overall contract values, not invoice by invoice (HMRC technical guide: applying the 5% disregard).

HMRC's technical guide suggests this wording for an end user notice (HMRC technical guide: making written notification):

"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."

Effect on cash flow and invoice finance

HMRC says that if you are a subcontractor, your customers will not be paying you VAT, which reduces the money coming into your business, so you need to plan for this in your day-to-day cash flow (HMRC technical guide: impact on cash flow and monthly returns). The same section says you may make net repayment claims to HMRC, and you can apply to move to monthly returns using your online VAT account (HMRC technical guide: impact on cash flow).

You can't use the VAT Cash Accounting Scheme for reverse charge supplies (HMRC technical guide: Cash Accounting Scheme). Flat Rate Scheme users who make reverse charge supplies leave them out of their flat rate calculation (HMRC technical guide: Flat Rate Scheme).

The same point applies to invoice finance. A provider advances a share of each invoice's value, and a reverse charge invoice has no VAT added to the total, so the cash you can draw against it is lower than on the same job invoiced with VAT. In the example above, that is a share of £10,000 rather than £12,000. When you compare facilities, work out the advance on your invoice totals as they now look.

For funding options built around construction payments, see construction finance and our guide to construction invoice finance.