Construction Industry Scheme (CIS) & VAT Domestic Reverse Charge

Reverse Charge: Who Pays the VAT?

Since April 2021, construction businesses must use the VAT Domestic Reverse Charge. This shifts VAT responsibility from the service provider (you) to the customer. Your invoice format changes as a result.

How Reverse Charge Works

In a normal sale, you charge VAT and send it to HMRC. With reverse charge:

• You invoice WITHOUT VAT
• The customer is responsible for paying the VAT to HMRC
• Your customer must be VAT registered to use reverse charge
• You reclaim input VAT on your own costs normally

Example: A Plumber's Invoice

You're a VAT-registered plumber quoting to fix a commercial building's boiler.

BEFORE Reverse Charge:

Labour and materials: £1,000
VAT @ 20%: £200
TOTAL: £1,200

(You pay the £200 VAT to HMRC)

AFTER Reverse Charge (April 2021 onwards):

Labour and materials: £1,200
VAT: Reverse charge — VAT payable by customer
TOTAL: £1,200

(Customer pays the VAT, not you)

Who Must Use Reverse Charge?

Reverse charge applies to construction services supplied to another VAT-registered business. This includes:

• Building and construction work
• Demolition
• Installation of fixtures and fittings
• Interior design and fit-out
• Scaffolding and temporary works
• Specialist trades (plumbing, electrical, HVAC, etc.)

Who Is Exempt from Reverse Charge?

• Supplies to non-VAT-registered customers (consumers, small businesses below threshold)
• Supplies to customers outside the UK
• Supplies of certain materials and goods (not labour)

If your customer is NOT VAT registered, you charge normal VAT (20%).

Invoice Format Under Reverse Charge

ABC Construction Ltd
VAT Reg: GB 123 4567 89
123 Builder Lane, Manchester, M1 2AB

Invoice to: XYZ Developments Ltd (VAT Reg: GB 999 8888 77)
Invoice Number: ABC-0045
Date: 10 May 2026

Description of Services
─────────────────────────────────────────────
Boiler installation and pipework: £1,500
Labour (3 days @ £200/day): £600
Materials (pump, valves, pipe): £400
─────────────────────────────────────────────
Subtotal (excl. VAT): £2,500

VAT: Reverse charge — VAT payable by recipient
[per VAT Notice 735, Construction Services and the Reverse Charge]

TOTAL: £2,500

Notes:
- This invoice is subject to the Construction Industry Scheme (CIS)
- Payment due: 30 days from invoice date
- VAT will be accounted for by the recipient

What About CIS Deductions?

The Construction Industry Scheme (CIS) is separate from reverse charge. It allows main contractors to deduct 20% or 30% from payments to subcontractors before paying them.

So if you're a subcontractor invoicing a main contractor:

• You invoice £1,000 + reverse charge VAT
• Main contractor deducts 20% CIS (£200)
• You receive £800 immediately, £200 held as CIS deduction
• You get the £200 back through your tax return

Key Points for Reverse Charge Invoices

• Never charge VAT line — State "Reverse charge applies" instead
• Make it clear — Use plain language, not jargon
• Include HMRC reference — "Per VAT Notice 735" shows you know the rules
• Both parties VAT registered? — Check before invoicing. If customer is not registered, use normal 20% VAT
• Keep records — Prove the customer was VAT registered at the time

Common Mistakes

• Charging VAT AND applying reverse charge (wrong — pick one)
• Using reverse charge on non-construction services
• Applying reverse charge to a non-VAT-registered customer
• Not declaring the reverse charge clearly on the invoice

FAQ

Can I use reverse charge informally (just agree with customer)?

No. It's a legal requirement under HMRC rules. Both parties must follow it formally.

What if customer disputes they're liable for VAT?

Document proof of their VAT registration. Keep their VAT number and registration confirmation.

Does reverse charge affect my VAT return?

Yes. You report reverse charge supplies separately. HMRC tracks them to ensure customers are paying the VAT.