The construction VAT reverse charge changes who pays the VAT on building work. The customer accounts for the VAT, not the supplier. It applies to many building and construction services between VAT registered businesses in the Construction Industry Scheme, known as CIS.
What the reverse charge means
Normally a supplier charges VAT and pays it to HMRC. Under the reverse charge, the supplier does not charge VAT. Instead, the customer records both the VAT on the sale and the VAT they can reclaim on their own return. The two usually cancel out, so no money changes hands for the VAT itself.
This rule has applied to construction since 1 March 2021. It was brought in to cut VAT fraud in the building trade.
When it applies
The reverse charge applies when all of these are true:
- The supply is a building or construction service covered by CIS
- Both businesses are VAT registered
- Both are registered for CIS
- The customer is not the end user of the work
- The VAT is at the standard or reduced rate
If any of these is not met, you charge VAT the normal way.
[ Infographic: Who accounts for VAT under the reverse charge ]
Brief: show a subcontractor billing a contractor with no VAT charged, and the contractor accounting for the VAT on their own return.
Alt text: Under the construction reverse charge the contractor accounts for the VAT, not the subcontractor.
Caption: The customer accounts for the VAT, not the supplier.
When it does not apply
You charge VAT as normal when:
- The customer is the end user, such as the property owner
- Either business is not VAT registered
- The work is zero rated, such as some new build housing
- The service is not covered by CIS
What to put on the invoice
When the reverse charge applies, your invoice shows all the usual details but does not add VAT to the total. It must state clearly that the reverse charge applies and show the rate of VAT the customer needs to account for. A line such as reverse charge, customer to account for VAT to HMRC, makes this clear.
End user status
An end user is a business or person that receives the work but does not sell it on as a construction service. End users should tell their supplier in writing that they are an end user, so the supplier knows to charge VAT in the normal way.
Frequently asked questions
What is the construction VAT reverse charge? A rule where the customer accounts for the VAT on building work instead of the supplier. It applies to CIS services between VAT registered businesses.
When did the reverse charge start? It has applied to construction services since 1 March 2021.
Who accounts for the VAT? The customer. The supplier does not charge VAT, and the customer records the VAT on their own return.
Does the reverse charge apply to end users? No. If the customer is the end user, the supplier charges VAT in the normal way.
What should the invoice say? It should state that the reverse charge applies and show the VAT rate the customer must account for, without adding VAT to the total.