VAT reverse charge for builders and subcontractors
Since 1/3/2021, much of the building work done for other VAT registered businesses uses the domestic reverse charge: the customer accounts for the VAT, not the supplier. We work out which of your jobs it covers and set up your invoices and VAT returns to match.
ACCA qualified accountants with over 20 years in practice
When the reverse charge applies
All of these must be true.
Your customer is VAT registered
A homeowner or another customer who is not VAT registered pays VAT in the normal way.
The work is reported under CIS
The reverse charge covers the same building and construction work as the Construction Industry Scheme.
CIS accountantsThe work is standard or reduced rated
Zero rated work, such as some new homes, is outside it.
When it does not apply
End users
A VAT and CIS registered business that does not sell the building work on, such as a developer or a landlord, can tell you in writing that it is an end user. You then charge VAT as normal.
Intermediary suppliers
A business connected to the end user that passes the work on to it can tell you in writing, with the same result.
Small reverse charge parts
If the reverse charge part is 5% or less of the whole supply, it can be ignored. The 5% is not worked out invoice by invoice.
What your invoice must say
A reverse charge invoice must make clear how much VAT is due under the reverse charge and include the words reverse charge. Wording such as "Customer to pay the VAT to HMRC" or "S55A VATA 94 applies" is accepted.
End user and intermediary notices can come by post, by email or in the contract. If a notice is not made correctly, the customer is liable for the VAT. We keep a copy with each job so your records match your invoices.
Your VAT return, in plain words
As the supplier, you put no output VAT on reverse charge sales.
As the customer, you add the VAT to the output tax on your own return and reclaim it on the same return, without entering the purchase as a sale. For most customers the two figures cancel out.
Cash flow, the Flat Rate Scheme and cash accounting
On reverse charge sales your customer pays you without the VAT. You no longer hold that VAT between payment and your return, so your bank balance can look lower than before.
Reverse charge sales are left out of the Flat Rate Scheme. If most of your work is reverse charge, the labour only flat rate of 14.5% (materials under 10% of turnover) may no longer suit you, so we compare the options with your own figures.
The Cash Accounting Scheme cannot be used for reverse charge supplies.
Your trade
The tax rules on this page come from GOV.UK and HMRC guidance. Last checked .
Questions about the VAT reverse charge
Does the reverse charge apply to work for a homeowner?
No. It only applies when your customer is VAT registered. A homeowner who is not registered pays VAT in the normal way.
My customer says they are an end user. What should I do?
Ask them to tell you in writing, by letter, email or in the contract, and keep it with the job. Then you charge VAT as normal.
What wording goes on a reverse charge invoice?
The invoice must show the VAT due under the reverse charge and say reverse charge. Wording such as "Customer to pay the VAT to HMRC" is accepted.
I am on the Flat Rate Scheme. What changes?
Reverse charge sales are not accounted for under the scheme. We check whether the scheme still suits you.
Does it apply if only a small part of the job is reverse charge work?
If the reverse charge part is 5% or less of the whole supply, it can be ignored, but the 5% is not worked out invoice by invoice.
Get your VAT right on every job
Tell us about your work and your customers and we will send you a quote. Or book a free call to talk through an invoice.