Since 1 March 2021, most VAT-registered construction businesses no longer charge VAT to each other in the normal way. Instead, the VAT domestic reverse charge for building and construction services shifts responsibility for the VAT from the supplier to the customer. It catches a lot of subcontractors out, especially on cashflow.

What the reverse charge means

For supplies it covers, you as the supplier do not charge VAT on your invoice. Instead, your customer accounts for both the output and input VAT on their own return. You still state the VAT rate and amount on the invoice, but you do not collect it.

When does it apply?

The reverse charge generally applies where all of these are true:

  • The supply is of construction services within the scope of CIS.
  • Both parties are VAT registered.
  • The customer is not an end user, in other words they are buying to supply on, not as the final customer.

If the customer is an end user or an intermediary supplier, normal VAT rules apply and they should tell you so in writing.

What to put on your invoice

  • Make clear the reverse charge applies and that the customer must account for the VAT.
  • Show the VAT rate or amount, but do not add it to the total you are charging.

The cashflow catch

Before the reverse charge, the VAT your customers paid you sat in your bank account until your next VAT return. That working-capital cushion is gone: you no longer receive the VAT at all. Many subcontractors felt this as a real squeeze when the rules came in. Plan for it.

Because the reverse charge is tied to CIS, the two go hand in hand, see CIS deductions explained. This is general guidance, not tax advice; check your own position with your accountant.