No, the VAT reverse charge does not apply to all construction work. It covers standard and reduced-rate construction services between VAT-registered businesses, where the customer pays you under the Construction Industry Scheme, and it stops at a list of specific exclusions: zero-rated work such as building a new home, a customer who has told you in writing that they’re an end user or intermediary supplier, staff hire, and a handful of other supplies. If your job sits outside those exclusions, you charge VAT normally.
- Reverse charge applies to standard/reduced-rate building work between VAT-registered businesses, where the customer pays you under CIS.
- Zero-rated work, such as building a new home, is never reverse charged. Reduced-rate work can be.
- If the customer tells you in writing that they’re an end user or intermediary supplier, charge VAT normally.
- Staff hire and plant hire on its own sit outside it.
- Invoice wording matters: the invoice must say the reverse charge applies and that the customer accounts for the VAT.
Does the VAT reverse charge apply to all construction work?
The rule has three gates, and all three must open before you apply the reverse charge:
| Gate | Reverse charge applies when | Reverse charge does NOT apply when |
|---|---|---|
| Work type | Standard or reduced-rate building services | Zero-rated work, such as building new dwellings |
| Who you bill | A VAT-registered customer who pays you under CIS and hasn’t told you in writing that they’re an end user or intermediary supplier | A customer who isn’t VAT registered, such as a homeowner, or one who has told you in writing that they’re an end user or intermediary supplier |
| Scheme status | The customer pays you under CIS | The customer doesn’t pay you under CIS, for example a homeowner, or work outside CIS such as scaffold hire with no labour |
Miss any one gate and you charge VAT in the normal way. On a typical mixed workload (labouring for a main contractor, a domestic extension, and a new-build plot) a subcontractor can hold all three positions in the same month.
What the reverse charge actually does
Instead of you adding VAT to the invoice and paying it to HMRC, the customer records the VAT on their own return. You state the amount of VAT that would have been charged, note that the customer must account for it under the domestic reverse charge, and charge nothing. You no longer collect the VAT, so less cash comes in on each invoice, and a VAT-registered subcontractor may find their returns turning into repayment claims. HMRC notes you can apply to move to monthly returns.
The mechanics on the invoice are the part subcontractors get wrong. See a worked reverse-charge invoice for the exact wording and layout, because without the statement the invoice doesn’t tell the customer to account for the VAT.
In Sendinvo the reverse charge is a tick on the invoice, offered once CIS is switched on in Company and the company has a VAT number. The invoice then charges no VAT, shows “Reverse charge” where the VAT would be, and states the VAT the customer accounts for to HMRC, at its rate and amount.
When the reverse charge does NOT apply
Exclusions decide most real-world cases. These supplies stay under normal VAT even when you’re both VAT registered and the customer pays you under CIS:
- Zero-rated work. Building a new home is zero-rated all the way down the chain, so a subcontractor’s work on one is 0% too, with no VAT to reverse. Anything at 20% within a new-build job, such as fitted ovens or scaffold hire, isn’t reverse charged either: charge VAT on it as normal. A new building for a charity, or a communal residential one such as a care home, is different: only the main contractor’s supply to the charity can be zero-rated, with the charity’s certificate. A subcontractor’s work on it is standard-rated, and reverse charged.
- End user supplies. An end user is a VAT- and CIS-registered business that uses the work rather than selling it on, such as a local authority having work done on its own buildings, or a property company keeping the building it has work done on. If one tells you so in writing, charge VAT normally. A homeowner isn’t VAT registered, so their job is charged VAT normally anyway.
- Intermediary supplies. An intermediary supplier is a VAT- and CIS-registered business connected or linked to an end user, passing the work on to it unchanged. If one tells you so in writing, charge VAT normally.
- Staff hire. An employment business supplying workers isn’t making a reverse charge supply, even when it’s paid under CIS.
Reduced-rate work is not on this list. Converting a non-residential building into a home, or renovating one that hasn’t been lived in for 2 years or more, carries the 5% rate, and the reverse charge covers it as it covers standard-rated work.
One quiet trap: end user status can change. A main contractor may be an intermediary on one contract and an end user on another. Ask, in writing, before the first invoice: their confirmation is your evidence, and without it the reverse charge applies even when you think they are one.
How to work out your position on each job
Run the same three questions on every new contract, or put them through the reverse charge checker:
- Are you and your customer both VAT registered, and does the customer pay you under CIS, at any rate, 30% and gross payment included? If not, normal VAT.
- Is the work zero-rated? If yes, it goes out at 0% and the reverse charge is out. Standard- and reduced-rated work goes on to the next question.
- Has the customer told you in writing that they’re an end user or intermediary supplier? If yes, normal VAT. If not, the reverse charge applies.
If the reverse charge applies, structure the invoice so VAT is shown as excluded and the CIS deduction is calculated on the net labour figure. The two schemes meet on every reverse charge invoice, so check both.
What changes for your VAT return
As the supplier, you enter only the net value of a reverse charge sale on your return, with no output tax. The VAT goes on your customer’s return instead. Neither the flat rate scheme nor cash accounting can be used for reverse charge sales, though you can stay on either scheme for the rest of your work.
- Enter the net value of the sale, and no output tax.
- Your customer adds the VAT to their output tax and reclaims it as input tax on the same return.
- For them the net effect is normally nil, but both entries have to be made.
Related questions
Does the reverse charge apply to a domestic customer’s extension?
No. A homeowner isn’t VAT registered, so you charge VAT at the normal rate. The reverse charge only reaches business-to-business supplies reported through CIS.
Does the reverse charge apply if I am not VAT registered?
No. The charge only applies between VAT-registered businesses. An unregistered subcontractor invoices without VAT, and there is no VAT for the customer to account for.
Does the reverse charge apply to materials on a construction invoice?
It can. When materials and labour are supplied together under the contract, the whole supply follows the same treatment as the labour. When you simply resell materials, other rules apply. The point to check is whether the supply is a construction service or a goods sale.
FAQ
Does the VAT reverse charge apply to all construction work?
No. It applies to standard and reduced-rate construction services between VAT-registered businesses, where the customer pays you under CIS and hasn’t told you in writing that they’re an end user or intermediary supplier. Zero-rated work such as new builds, staff hire and end-user supplies are excluded.
When did the domestic reverse charge start?
The UK domestic reverse charge for building and construction services started on 1 March 2021, after a delay from the original October 2019 date.
What is an end user in construction VAT?
An end user is a VAT- and CIS-registered business that uses the construction service rather than selling it on. It tells its supplier in writing that it’s an end user, and the supplier then charges VAT under the normal rules. Nobody registers with HMRC as one.
Do I apply the reverse charge to a new-build house?
No. New dwellings are zero-rated, so the reverse charge does not apply. You issue a zero-rated invoice and may still face a CIS deduction on the labour element.
What wording must a reverse charge invoice carry?
There’s no set wording, but it must say the reverse charge applies, make clear the customer accounts for the VAT to HMRC, and state the VAT due without adding it to the amount charged. HMRC’s example also shows the customer’s VAT number.
Can I use the flat rate scheme with the reverse charge?
Not for those supplies. Reverse charge sales are left out of the flat rate scheme, and cash accounting can’t be used for them either, though you can stay on either scheme for the rest of your work.
One last thing
The most expensive mistake is not applying the charge to the wrong job. It is forgetting the end user check. Some VAT- and CIS-registered customers, local authorities and property companies among them, tell their suppliers in writing that they’re end users so they receive normal VAT invoices. Once one has, invoice them under the normal rules. Until one has, the reverse charge applies.