What is VAT Reverse Charge?
The VAT reverse charge is a mechanism where the customer, rather than the supplier, accounts for VAT on a transaction. It is mandatory for most B2B construction services in the UK.
The VAT reverse charge for construction services shifted the responsibility for accounting for VAT from the supplier to the customer. Introduced on 1 March 2021, it applies to supplies of building and construction services reported under CIS where both parties are VAT-registered.
How it works: Under normal VAT rules, the supplier charges VAT and pays it to HMRC. Under the reverse charge, the supplier invoices without adding VAT, and the customer accounts for the VAT on their own VAT return—both as output tax and (if entitled) as input tax in the same period.
When the reverse charge applies: - The supply is of construction services within the scope of CIS - Both supplier and customer are VAT-registered - The customer is not an end user or a connected intermediary - Payment is reported under the Construction Industry Scheme
What your invoice must show: - A clear statement that the reverse charge applies, e.g. "Customer to account for reverse charge VAT at 20%" - The net amount of the supply (no VAT added) - Your VAT registration number
End users and intermediaries: If the customer is an end user (uses the building services for their own purposes and does not supply construction services onwards), the normal VAT rules apply and the supplier charges VAT as usual. The customer must confirm their end-user status in writing.
Common pitfalls: - Forgetting to check whether the customer is an end user - Failing to include the required reverse charge wording on invoices - Incorrectly applying the reverse charge to materials-only supplies (it only applies where there is a labour element)
Examples
A plumbing subcontractor invoices a main contractor £5,000 net with the note 'reverse charge: customer to account for VAT' instead of adding £1,000 VAT
An electrical firm supplies labour and materials to a developer; the reverse charge applies to the whole invoice because there is a labour element
A property owner confirms end-user status in writing, so the decorator charges VAT normally
Related Terms
CIS (Construction Industry Scheme)
CIS is a UK tax scheme where contractors deduct money from subcontractor payments and pass it to HMRC as advance tax payments.
Self-Billing
Self-billing is an arrangement where the buyer creates the invoice on behalf of the seller, based on goods received or services rendered.
Flat Rate VAT Scheme
The Flat Rate VAT Scheme lets eligible small businesses pay a fixed percentage of gross turnover as VAT, simplifying their VAT accounting.
Invoice
An invoice is a commercial document issued by a seller to a buyer, listing the products or services provided and requesting payment.
Put This Into Practice
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