VAT Reverse Charge for Construction: What UK Builders Need to Know
The domestic VAT reverse charge affects every VAT-registered builder working for another contractor. Here's how it works, when it applies, and how to invoice correctly.
What Is the VAT Reverse Charge for Construction?
Since March 2021, the way VAT works on most business-to-business construction services in the UK has changed. Under the domestic reverse charge, the customer accounts for the VAT — not the supplier. If you're a subcontractor invoicing a contractor, you no longer charge VAT on that invoice. Instead, the contractor handles the VAT through their own return.
This only applies when both parties are VAT-registered and the work falls within the scope of CIS. If you're doing work directly for a homeowner or an end user, the reverse charge doesn't apply — you charge VAT as normal.
When Does It Apply?
The reverse charge applies when all of these conditions are met:
The supply is within CIS scope — meaning it's construction work that would normally be reported under the Construction Industry Scheme. This covers most building, repair, demolition, and civil engineering work.
Both parties are VAT-registered — if either the subcontractor or the contractor isn't VAT-registered, normal VAT rules apply.
The customer is not an end user — if the person receiving the work is the final consumer (like a homeowner), you charge VAT as normal. The reverse charge only applies to business-to-business transactions within the construction chain.
The customer is not a landlord or property developer using the service for their own purposes — these are considered end users.
How to Invoice Under Reverse Charge
When the reverse charge applies, your invoice must show a few specific things:
No VAT on the invoice. Instead of adding 20% VAT, you show the net amount only.
A specific statement on the invoice. HMRC requires you to include wording along the lines of: "Customer to account for VAT to HMRC under the domestic reverse charge procedure."
Your VAT number must still appear. Even though you're not charging VAT, you still need to show your VAT registration number.
The rate of VAT that would have applied. You need to note that the applicable rate is 20% (or 5% for certain supplies).
Practical Example
Say you're a plasterer doing work for a main contractor. Both of you are VAT-registered. Your invoice would look like:
| Item | Amount |
|---|---|
| Plastering — 3-bed semi, skim all rooms | £2,400 |
| Reverse charge applies | |
| Total due | £2,400 |
The contractor then accounts for the £480 VAT (20% of £2,400) on their own VAT return — declaring it as both output tax and input tax. This is a paper exercise for them if they can reclaim VAT in full.
Without the reverse charge, you would have invoiced £2,880 (£2,400 + £480 VAT), collected the VAT, and paid it to HMRC. The new system stops that VAT passing through your hands — which is how HMRC combats missing trader fraud in construction.
Common Mistakes to Avoid
Charging VAT when you shouldn't. If the reverse charge applies and you still charge VAT, the contractor shouldn't pay it — and you shouldn't account for it. This creates a mess for both of your VAT returns.
Not checking whether your customer is an end user. If you're unsure, ask. A main contractor hiring you to work on someone else's property is not an end user. A homeowner hiring you directly is.
Forgetting the statement on your invoice. HMRC expects the reverse charge notification to be clearly stated on the invoice. Missing it can cause issues if either party is audited.
Not adjusting your cash flow. Under the old rules, you'd collect VAT from the contractor and hold it until your next VAT return. Under reverse charge, that cash no longer passes through your account. If you were relying on that VAT float, your cash flow takes a hit.
How This Interacts with CIS
The reverse charge and CIS work side by side but they're separate things. CIS deductions apply to the labour portion of a payment. The reverse charge applies to the VAT treatment.
When both apply: the contractor receives your invoice with no VAT (reverse charge), then deducts CIS from the labour portion of the net amount. You receive the net amount minus CIS. The contractor accounts for the VAT on their return and sends the CIS to HMRC on your behalf.
How BuildScope Handles This
BuildScope's invoicing system lets you toggle reverse charge on any invoice. When enabled, it automatically removes VAT from the total, adds the required HMRC statement, and calculates the correct payment amount — including CIS deductions if applicable. No manual calculations needed.
Related: See how BuildScope works for builders.