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Domestic Reverse Charge VAT for Construction Services

How the UK construction services domestic reverse charge works, which supplies it covers, and exactly what to write on a reverse charge invoice.

What is the domestic reverse charge for construction?

The Construction Services Domestic Reverse Charge (commonly called the CIS reverse charge or CISDRC) is a VAT anti-avoidance measure introduced by HMRC on 1 March 2021. It was designed to counter VAT fraud in construction supply chains, where some businesses would collect VAT from customers but fail to pass it on to HMRC.

Under the reverse charge, the subcontractor does not charge VAT to the contractor. Instead, the contractor who receives the services accounts for the VAT themselves on their own VAT return, both as output tax and (to the extent it is recoverable) as input tax. The net result for a fully-taxable contractor is typically nil, but the arrangement prevents the VAT from being collected and disappearing into the supply chain.

Which supplies does the reverse charge apply to?

The reverse charge applies to supplies of building and construction services that fall within the scope of the Construction Industry Scheme (CIS). These include:

The reverse charge does not apply to certain services even if supplied by a CIS-registered business, including professional services such as architectural or surveying work, materials supplied separately from labour, and certain finance and insurance services.

Critically, the reverse charge only applies to B2B supplies where both the supplier and the customer are VAT-registered, and where the customer makes onward supplies of construction services (i.e. they are a contractor, not an end user). If you supply directly to an end user (a business that will occupy or use the building and does not make onward supplies of construction services), normal VAT rules apply and you charge VAT in the usual way.

What to write on a reverse charge invoice

A reverse charge invoice must include all the standard fields required on a full VAT invoice (invoice number, date, your business name and address, your VAT number, the customer's details, description of services, and net amounts). The key difference is how VAT is presented.

Example reverse charge invoice wording
Services: groundwork and foundation preparation £10,000.00
VAT rate 20%
VAT amount (reverse charge) £2,000.00
Total payable by customer £10,000.00
Domestic reverse charge: customer to account for VAT of £2,000.00 to HMRC. VAT Act 1994, Section 55A applies.

You show the net amount, the applicable VAT rate, and the VAT amount that the customer must account for. However, you do not add the VAT to the total payable. The customer pays only the net amount. You include a statement on the invoice indicating that the domestic reverse charge applies. HMRC's published guidance suggests wording along the lines of "Domestic reverse charge: VAT Act 1994, Section 55A applies."

How to report reverse charge supplies on your VAT return

As the subcontractor issuing a reverse charge invoice, you report the net value of the supply in Box 6 (total value of sales excluding VAT) of your VAT return. You do not include anything in Box 1 (VAT charged on sales) for those supplies because you are not charging VAT. This is different from zero-rated supplies, which you also report in Box 6 at nil VAT in Box 1.

As the contractor receiving a reverse charge invoice, you must account for the VAT as output tax in Box 1 and, to the extent it is recoverable as input tax, claim it in Box 4. You also include the net value in Box 7 (total purchases excluding VAT). The effect is usually neutral for a fully-taxable contractor.

Checking whether the reverse charge applies

Before issuing an invoice for construction services to another business, you need to establish whether the reverse charge applies. The key questions are:

If all four are yes, the reverse charge applies. You should ask your customer to confirm in writing that they are not an end user and that they are CIS and VAT-registered. If they confirm end-user status, you charge VAT in the normal way.

For general UK VAT invoice requirements, see the VAT invoice requirements guide. For sole trader and limited company invoicing rules, see the sole trader invoicing guide and the limited company invoicing guide.

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Reverse charge VAT questions

What is the domestic reverse charge for construction?
The domestic reverse charge for construction services (also called the Construction Services Domestic Reverse Charge or CISDRC) is a VAT anti-fraud measure that shifts the responsibility for accounting for VAT from the supplier to the customer. Instead of the subcontractor charging VAT and paying it to HMRC, the contractor who receives the services accounts for the VAT themselves on their own VAT return.
Which construction services does the reverse charge apply to?
The reverse charge applies to supplies of building and construction services that are within the scope of the Construction Industry Scheme (CIS). This includes construction, alteration, repair, extension, demolition of buildings and structures, installation of heating, lighting, power, water and ventilation systems, and internal cleaning in the course of construction. It does not apply to services supplied to end users or to professional services such as architecture and surveying.
What must I write on a domestic reverse charge invoice?
A reverse charge invoice must include all the standard VAT invoice fields, but instead of showing a VAT amount to collect, you must state clearly that the domestic reverse charge applies. You show the net amount, the applicable VAT rate, and the VAT amount that the customer must account for, but you do not add VAT to the invoice total. HMRC recommends wording such as "Domestic reverse charge: VAT Act 1994, Section 55A applies."
Does the reverse charge apply if my customer is an end user?
No. The reverse charge does not apply to supplies made directly to end users. An end user is a business or individual that uses the building or structure for their own purposes and does not make further supplies of construction services. If you supply directly to a business that commissioned the work for their own occupation, normal VAT rules apply.
How does the reverse charge affect my VAT cash flow?
The reverse charge can improve cash flow for subcontractors because you no longer collect VAT from your customers and temporarily hold it before paying HMRC. However, it also means you may be in a regular VAT repayment position (because you have more input VAT to reclaim than output VAT to pay). HMRC has guidance on monthly VAT returns for businesses that expect to be in a regular repayment position.