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Construction VAT

Does the reverse
charge apply?

Answer HMRC’s conditions one at a time to see how to charge VAT on a construction invoice, with the source for every step.

    Question 1

    Are you registered for VAT in the UK?

    The reverse charge only changes how a VAT-registered supplier charges VAT.

    HMRC: if you supply construction services

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    VAT domestic reverse charge
    For building and construction services between VAT-registered businesses in CIS, the customer accounts for the VAT to HMRC instead of paying it to the supplier. The supplier's invoice shows the VAT due but does not charge it.

    The 8 questions, in order

    The checker asks HMRC’s conditions one at a time and stops at the first that settles it. The reverse charge applies only when every one points to it:

    1. Are you registered for VAT in the UK? Source
    2. Is the work a building or construction service covered by CIS? Source
    3. Is the service standard rated or reduced rated? Source
    4. Are you an employment business supplying staff or workers? Source
    5. Is your customer registered for VAT in the UK? Source
    6. Is the payment reported under the Construction Industry Scheme? Source
    7. Has your customer told you in writing that it is an end user or an intermediary supplier? Source
    8. Is the reverse charge work 5% or less of the whole contract value, and did you and your customer agree at the start to disregard it? Source

    What a reverse charge invoice looks like

    The invoice carries everything a normal VAT invoice does and states the VAT, but leaves it out of the total the customer pays you, with a note that the reverse charge applies. On £2,000 of labour and £1,000 of materials, the invoice total is £3,000, and it notes £600 of VAT at 20% for the customer to account for. HMRC accepts wording such as:

    • “Reverse charge: customer to pay the VAT to HMRC”
    • “VAT Act 1994 Section 55A applies”
    • “S55A VATA 94 applies”

    The CIS deduction is separate and still applies to the labour: £400 at 20% here, so the contractor pays £2,600. The CIS calculator shows the deduction on any invoice.

    Where people get it wrong

    • Assuming a customer is an end user. Until the customer confirms it in writing, a supplier must apply the reverse charge if every other condition is met.
    • Splitting labour from materials. Goods supplied with construction services are one supply: the reverse charge covers the whole invoice, and separate invoices for supply and fix on one order do not change that.
    • Working out the 5% per invoice. The 5% disregard is judged on contract values agreed at the start, never invoice by invoice.
    • Treating an agency as a subcontractor. An employment business supplying workers is supplying staff, which is outside the reverse charge.

    If you are not VAT registered

    Then none of this changes your invoices: you charge no VAT either way. The CIS deduction still applies to your labour if the contractor pays you under the scheme.

    Key takeaways
    • The reverse charge applies to CIS construction services between VAT-registered businesses at the standard or reduced rate.
    • An end user or intermediary supplier takes it out only by telling you in writing.
    • The invoice shows the VAT but does not charge it, with a reverse charge note.
    • CIS deductions still apply to the labour, separately from VAT.
    • CIS

      The CIS deduction on an invoice, and the refund a subcontractor may be due.

    • VAT

      Add VAT to a price or take it out, at 20, 5 or 0 percent.

    • VAT registration and flat rate

      Whether you must register for VAT, and the standard and flat rate schemes compared.

    • Invoice number generator

      A numbering format for your invoices, and the next number in your sequence.

    Frequently asked questions

    When does the domestic reverse charge apply?

    When a VAT-registered supplier provides standard or reduced rated building and construction services to a VAT-registered customer, the payment is reported under CIS, the supplier is not an employment business supplying staff, and the customer has not confirmed in writing that it is an end user or intermediary supplier.

    What do I write on a reverse charge invoice?

    Everything a VAT invoice needs, the VAT due under the reverse charge (or the rate, if you cannot show the amount), a total that leaves the VAT out, and a note such as "Reverse charge: customer to pay the VAT to HMRC" or "S55A VATA 94 applies".

    Does the reverse charge apply to materials?

    Yes, when the materials are supplied with the construction service. Goods and services on one supply are treated alike, so the reverse charge covers the whole invoice.

    What is an end user?

    A VAT and CIS registered business that receives construction services and does not supply them on, such as a business having its own premises refitted. It takes itself out of the reverse charge only by telling its supplier in writing.

    I am not VAT registered. Does the reverse charge affect me?

    No. You do not charge VAT, so there is nothing to reverse. CIS deductions from your labour still apply if the contractor pays you under the scheme.

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    Where these figures come from

    Rates from GOV.UK.