What changed and why
Since March 2021, the domestic reverse charge shifts responsibility for VAT on construction services from the supplier to the customer, throughout the CIS supply chain. It was introduced to stop “missing trader” fraud, where a subcontractor charged VAT, was paid it, and disappeared without paying HMRC. Now that VAT never changes hands between the businesses.
When it applies
The reverse charge applies when all of these are true:
- The service is standard or reduced-rated construction work
- Both supplier and customer are VAT-registered
- Both are registered for CIS
- The customer is not an end user (or intermediary treated as one)
If any is missing — for example the customer is an end user — you charge normal VAT instead.
The end-user exception
An end user receives construction services but doesn’t sell construction on — typically the property owner having work done. Supplies to end users fall outside the reverse charge, so normal VAT applies. Because the supplier can’t always tell, end users should confirm their status in writing; keep that confirmation on file.
Invoicing and cash flow
Under the reverse charge you issue a VAT invoice but add no VAT, stating that the reverse charge applies and showing the rate/amount the customer must account for. For the customer it’s usually cash-neutral. For subcontractors, though, no longer receiving VAT reduces working capital — and can push you into a regular VAT repayment position, where switching to monthly returns speeds up refunds.
Get it set up correctly
The reverse charge trips up a lot of construction businesses — wrong invoices, VAT charged when it shouldn’t be, cash-flow surprises. We set your bookkeeping, invoicing and VAT scheme up to handle it cleanly. Call 0114 327 1480.