The domestic reverse charge for construction, explained
Since March 2021, VAT in construction supply chains has worked backwards: in many cases the customer accounts for the VAT instead of the supplier. Invoicing as though it is still 2020 is one of the sector's most common and most correctable errors.
What the reverse charge does
Where it applies, the subcontractor does not charge VAT on the invoice. Instead, the contractor receiving the supply accounts for the VAT on their own return, typically declaring and reclaiming it on the same return. The tax outcome is usually neutral; what changes is who handles the VAT and whose cash flow feels it.
When it applies
Broadly, to standard-rated and reduced-rated building and construction services reported under CIS, supplied between VAT-registered businesses in the chain. It does not apply to zero-rated work, to supplies to end users and intermediary businesses that declare that status in writing, or where the customer is not VAT and CIS registered. The end-user declaration is the detail most often missed: without it, a main contractor working for a property owner can find the wrong party accounting for the VAT.
What your invoices must say
A reverse charge invoice shows no VAT charged but must state clearly that the reverse charge applies and that the customer must account for the VAT, showing the rate or amount the customer needs. Software handles this cleanly once configured; the errors come from templates never updated.
The cash flow effect nobody warns subcontractors about
Subcontractors who previously held customers' VAT for a quarter before paying it over lose that float under the reverse charge, and many become repayment traders, reclaiming more than they owe. For them, monthly VAT returns often improve cash flow, bringing repayments forward. It is exactly the kind of adjustment worth making deliberately rather than discovering by accident.
This note is general guidance. We run CIS and VAT together for construction clients, which is where reverse charge errors get caught. If your invoices have not changed since 2021, talk to us.