Last updated: 16 October 2026
What is the domestic reverse charge?
Since 1 March 2021, the VAT domestic reverse charge has applied to many building and construction services. Instead of the supplier charging VAT and paying it to HMRC, the customer accounts for the VAT on its own VAT return. It was introduced to stop fraud where subcontractors collected VAT and then disappeared without paying it over.
When does it apply?
The reverse charge applies when all of the following are true:
- the services are standard or reduced-rated
- they are “specified services” covered by the Construction Industry Scheme (CIS)
- both supplier and customer are VAT registered in the UK
- the customer is registered for CIS and is not an end user or intermediary
When does it not apply?
| Situation | Treatment |
| Customer is an end user (for example a property owner or developer that does not sell on construction services) | Normal VAT |
| Customer is an intermediary connected to an end user | Normal VAT, if notified in writing |
| Zero-rated work, such as building new homes | No VAT to reverse charge |
| Supplies of staff or workers only | Normal VAT |
| Reverse charge services are 5% or less of the total value | Normal VAT on the whole invoice (the 5% disregard) |
Invoice wording
The supplier issues an invoice showing the VAT rate and amount but does not charge it to the customer. Add wording such as “Reverse charge: customer to account to HMRC for the VAT”. Some software calls this “Domestic Reverse Charge @ 20%”.
Worked example
Ben is a VAT-registered plasterer working for a main contractor on an office refurbishment. He invoices £10,000 for labour and materials. Under the reverse charge, he does not charge the £2,000 VAT. The contractor includes £2,000 as output tax and £2,000 as input tax on its own VAT return, so pays nothing net. Ben includes the £10,000 net value in box 6 but no VAT in box 1.
Cash flow effects for subcontractors
Subcontractors no longer hold VAT collected from customers, but they still pay VAT on their own purchases. Many move into a regular repayment position. Monthly VAT returns can speed up refunds. The Flat Rate Scheme is often no longer suitable, because reverse charge sales are excluded from flat rate turnover.
End users must tell their suppliers
If you are an end user or intermediary, tell your subcontractors in writing so they charge VAT normally. Many contractors include this in their contracts.
Checking your customer’s status
Before applying the reverse charge, check the customer’s VAT number and confirm they are registered for CIS. Keep written confirmation of their end user status where relevant. If you are unsure, ask for it in writing at the start of the contract so your invoices are right from day one.
Frequently asked questions
Does it apply to a homeowner?
No. Homeowners are not VAT and CIS registered, so normal VAT applies.
What if I get it wrong?
HMRC may not penalise genuine errors if VAT has been accounted for, but correct it promptly.
Does it apply to materials?
Yes, when supplied with the specified services.
Does CIS still apply?
Yes. CIS deductions are still made on the labour element.
Related: CIS gross payment status, monthly CIS returns online and the VAT Flat Rate Scheme.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with construction VAT and CIS. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
