VAT domestic reverse charge: does it apply to my invoice?

The VAT domestic reverse charge applies to your invoice when you and your customer are both VAT-registered, the payment is reported under CIS, the work is standard or reduced-rated, and the customer hasn't told you in writing it's an end user or intermediary supplier. You then charge no VAT; the customer pays it to HMRC instead. It started on 1 March 2021.

How do you know if the reverse charge applies?

Work through these in order. If any answer sends you to "charge VAT as normal", you invoice the usual way.

Two more cases sit outside the check. Employment businesses supplying staff or workers never use the reverse charge, even where CIS applies. And when the reverse-charge services are 5% or less of the whole supply value, you and the customer can agree to ignore them, but only at the start of the contract, on the overall contract value, not invoice by invoice.

Who counts as an end user?

An end user is VAT-registered, has to run its subcontractor payments through CIS, and doesn't make onward supplies of the building work it buys. A developer building to sell, a retailer refitting its own shop or a housing association commissioning work can all be end users. A building contractor never is, because it sells the work on to its client.

An intermediary supplier is connected or linked to an end user: a landlord and tenant with an interest in the same land, or companies in the same group. It can also tell you in writing that the reverse charge shouldn't apply.

The duty to tell you lies with the customer. If you haven't had it in writing, apply the reverse charge. HMRC says the notice can be paper, electronic or within the terms of the contract. You can also put a line in your terms saying you'll assume the customer is an end user unless they say they are not, which puts the onus on them to tell you if they aren't.

What does that look like on real invoices?

The roofer is the most common case for small subbies. The builder is not an end user, so even though the client at the end is a homeowner, the subbie's invoice to the builder is reverse charged. The builder's own invoice to the homeowner carries VAT as normal.

That firm makes gates, railings and staircases and works for main contractors as well as homeowners. With the office manager gone, one of the owner's first questions was whether the reverse charge would be applied automatically to the right invoices. It's a fair worry: one firm can need the reverse charge on one invoice and normal VAT on the next.

What do you write on a reverse charge invoice?

The invoice must include the words "reverse charge" and show how much VAT is due, or the rate if you can't show the amount, without adding it to the total. HMRC accepts wording such as "Customer to pay the VAT to HMRC" or "VAT Act 1994 Section 55A applies".

On your invoice, below the line items:

Reverse charge: Customer to pay the VAT to HMRC.
VAT at 20% on £net amount = £VAT amount, to be accounted for by the customer. VAT Act 1994 Section 55A applies.

If you're the customer and an end user, send this to your supplier before work starts:

We confirm that your company name, VAT number VAT number, is an end user for the purposes of the VAT domestic reverse charge for building and construction services on project or contract name. Please charge VAT as normal on your invoices for this work.
Name, role, date

How does it show on the VAT return?

The supplier puts no output tax in box 1 for the sale and puts the net value in box 6. The customer enters the VAT due in box 1, reclaims it in box 4 (subject to normal rules) and enters the net purchase in box 7, not box 6. For most customers the VAT cancels out.

What changes for your cash flow?

On a reverse charge invoice the VAT never reaches your bank account, so you can't use it as working capital until the quarter end. A subbie who used to collect £1,700 VAT on an £8,500 job now collects £8,500 less any CIS deduction, while still paying VAT on materials. HMRC suggests checking whether monthly returns would get repayments to you faster. Your accountant can tell you whether the scheme you're on still makes sense.

Common questions