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When does the VAT domestic reverse charge apply to building work?

Last checked 24-10-2026. A plain guide, not legal advice: check the official guidance below for your job.

Where it applies, the subcontractor does not charge VAT on the invoice and the customer accounts for that VAT on its own VAT return instead. It applies to most standard and reduced rate construction services between VAT-registered businesses when the payment is reported under CIS.

When it applies

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

  • the supplier is registered for VAT in the UK and supplies building and construction services
  • the customer is registered for VAT in the UK
  • payment for the supply is reported within the Construction Industry Scheme
  • the services are standard 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 are the same as the construction operations covered by CIS, apart from workers supplied by employment businesses. They include building, altering, repairing and demolishing, installing heating, lighting, power and drainage systems, painting and decorating, and site clearance, excavation, foundations and scaffolding. The rules took effect for invoices with a tax point on or after 1 March 2021.

When it does not apply

Normal VAT rules apply if a condition above is missing. In practice:

  • a customer who is not VAT registered, such as a homeowner, is outside it. GOV.UK says a contractor working for a householder does not become an end user, so that contractor's own subcontractors still use the reverse charge if the conditions are met
  • zero-rated supplies are outside it, and so are some goods that are not ordinarily incorporated in new build housing
  • some services on their own, such as manufacturing or delivering materials, architects' and surveyors' work, and installing security systems, are not covered
  • an end user or intermediary supplier that has told the supplier in writing

An end user is a business registered for VAT and CIS that does not supply the construction services it buys onwards. An intermediary supplier is a connected business that passes the work to an end user, such as a landlord whose tenant is the end user. Builders are not normally end users, because they supply the work onwards. The notice can be given by post, by email or in a contract. If a supplier thinks a customer is an end user but has nothing in writing, it should still use the reverse charge.

The 5% disregard

If the part of a supply that falls under the reverse charge is 5% or less of the whole supply value, it can be disregarded and normal VAT rules apply. GOV.UK gives the example of a joiner who makes a staircase off site and then fits it. The job is reverse charge unless the fitting is 5% or less of the total charge.

The supplier and customer have to agree at the start of the contract that it applies, based on overall contract values. It is not worked out invoice by invoice.

What goes on the invoice

The invoice still has to carry everything a VAT invoice needs. On top of that it must make clear that the domestic reverse charge applies and that the customer has to account for the VAT, and it must show the VAT due under the reverse charge or the rate if the amount cannot be shown. That VAT is not added to the amount you charge.

The VAT regulations require the reference "reverse charge". GOV.UK gives these examples of wording that meets it: "VAT Act 1994 Section 55A applies", "S55A VATA 94 applies" and "Customer to pay the VAT to HMRC". If your software cannot show the VAT amount, add "customer to account to HMRC" and make sure the customer can tell which items are reverse charge.

Who accounts for the VAT

The customer does. The supplier enters only the net value of the sale on its VAT return and no output tax. The customer adds the VAT to its output tax and may reclaim the same amount as input tax on the same return, subject to the normal rules.

You cannot use the VAT Cash Accounting Scheme for reverse charge supplies, though you can keep using it for other work. Flat Rate Scheme users leave reverse charge sales out of their calculation. GOV.UK warns that not receiving VAT from customers affects a subcontractor's cash flow, and says you can apply for monthly VAT returns through your online VAT account.

To check a customer, use the CIS online service. A contractor may not show up there, so ask them to confirm they report under CIS.

Sources

Tools that help

Quotes PROQuotes from your own templates, by the hour or as lump sums, with VAT added up, and invoices from a quote in one click. Straight from the take-off.Letters and documents PROLetters, notices, memos and minutes on your letterhead, from ready-made starts: letters to neighbours, notices of delay, practical completion. Word or PDF.Spreadsheets PROA spreadsheet like Excel, with cost trackers, timesheets, material schedules, valuations and CIS payments ready to fill in. Opens and saves Excel files.

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