Domestic reverse charge VAT for construction: What you need to know

Team Nomi

Oct 05, 2026
6 minutes read

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The VAT domestic reverse charge changes how VAT is reported for certain construction services. Instead of the subcontractor paying VAT to HMRC, the contractor receiving the service accounts for the VAT.

The rules have applied to certain construction services since 1 March 2021. They mainly affect VAT-registered businesses working within the Construction Industry Scheme (CIS).

Understanding these rules can help contractors and subcontractors issue correct invoices, complete VAT returns and avoid VAT errors.

What is the VAT domestic reverse charge?

The VAT domestic reverse charge is a VAT rule that moves responsibility for accounting for VAT from the supplier to the customer.

Under normal VAT rules, a supplier adds VAT to an invoice, collects it from the customer and accounts for it to HMRC.

Under the domestic reverse charge, the supplier does not charge the VAT to the customer. Instead, the customer calculates the VAT and accounts for it on its own VAT return.

For example, a subcontractor completes qualifying construction work for a VAT-registered contractor. If the reverse charge applies, the subcontractor issues an invoice without adding VAT to the amount payable. The contractor accounts for the VAT instead.

When does the domestic reverse charge apply?

You must use the domestic reverse charge when the relevant conditions are met.

Generally, the following conditions must apply:

• • The supplier is VAT registered in the UK.
  • The customer is VAT registered in the UK.
  • The payment is reported under the Construction Industry Scheme (CIS).
  • The service is standard-rated or reduced-rated for VAT.
  • The supply is a construction service covered by the reverse charge.
  • The supplier is not an employment business supplying staff or workers.
  • The customer has not given written confirmation that it is an end user or intermediary supplier.

If these conditions do not apply, you may need to use the normal VAT rules instead.

How does the domestic reverse charge work for subcontractors?

If you are a subcontractor, the reverse charge can change how you issue your invoices.

Normally, you would add VAT to your invoice and receive the VAT from your customer.

If the domestic reverse charge applies, you do not add the VAT to the amount the customer has to pay. Instead, you show the applicable VAT rate or VAT amount on the invoice and state clearly that the reverse charge applies.

This means VAT for subcontractors can work differently from normal VAT accounting.

Example

Suppose a subcontractor completes qualifying construction work worth £10,000.

If the 20% domestic reverse charge applies:

The subcontractor does not collect the £2,000 VAT from the contractor.

Instead, the contractor accounts for the £2,000 VAT on its VAT return, subject to the normal rules.

How does the reverse charge affect cash flow?

The domestic reverse charge can affect cash flow, particularly for subcontractors.

Under normal VAT rules, a subcontractor collects VAT from the customer and later pays the relevant VAT to HMRC.

Under the reverse charge, the subcontractor does not receive that VAT amount from the customer.

For example, if a subcontractor normally invoices £10,000 plus £2,000 VAT, the customer would pay £12,000.

If the reverse charge applies, the customer pays £10,000 instead. The customer accounts for the £2,000 VAT on its own VAT return.

This can reduce the amount of cash a subcontractor receives from each qualifying invoice, so businesses should consider this when planning cash flow.

What should subcontractors check before raising an invoice?

If you are a subcontractor, check the following before sending an invoice:

1. Confirm that you are VAT registered.
2. Check whether the work falls within the construction reverse charge.
3. Check that the customer is VAT registered.
4. Check whether the payment falls within CIS.
5. Ask whether the customer qualifies as an end user or intermediary supplier.
6. Obtain written confirmation if the customer says the exclusion applies.
7. Use the correct VAT treatment on your invoice.
8. Include clear reverse charge wording where required.
9. Record the transaction correctly in your accounting software.
10. Check that the transaction appears correctly on your VAT return.

These checks can help reduce errors when dealing with VAT for subcontractors.

What should contractors check when receiving an invoice?

Contractors should also check each invoice carefully.

Before processing a construction invoice:

• • Check the supplier’s VAT number.
  • Confirm that the work falls within the reverse charge.
  • Check that the payment falls within CIS.
  • Check whether the customer or supplier has provided any relevant end-user confirmation.
  • Make sure the invoice clearly states that the reverse charge applies.
  • Check the VAT rate and amount shown.
  • Record the transaction using the correct reverse charge VAT code.
  • Include the transaction in the correct VAT return boxes.

HMRC also advises customers to check that their accounting systems or software can handle the reverse charge correctly.

How can accounting software help with domestic reverse charge VAT?

Construction businesses often handle a large number of invoices, CIS transactions and VAT records.

Accounting software can help by:

• • Applying the correct VAT treatment
  • Recording reverse charge transactions
  • Producing invoices with the relevant VAT information
  • Keeping transaction records
  • Preparing VAT return information
  • Reducing manual calculations

The key is to choose the correct VAT code and review transactions regularly rather than relying on software without checking the underlying VAT treatment.

Manage VAT and construction accounting with Nomi

Nomi is cloud-based accounting software for accountants and bookkeepers. It brings bookkeeping, VAT, payroll and other accounting tasks together in one system.

You can use Nomi to manage accounting records and VAT transactions while keeping your practice’s work organised.

For construction clients, using the correct VAT treatment is important when recording subcontractor invoices and other qualifying construction transactions.

Try Nomi with a 30-day free trial and see how it can support your accounting practice.

Note: This blog is for general information only and does not constitute tax or accounting advice. VAT treatment can depend on the exact nature of a supply and the businesses involved. Always check the latest HMRC guidance or speak to a qualified tax adviser if you are unsure.

Frequently asked questions

1. Does the domestic reverse charge apply to subcontractors?
   Ans: Yes. It can apply when a VAT-registered subcontractor provides qualifying construction services to another VAT-registered business and the required conditions are met.

2. Do subcontractors charge VAT under the reverse charge?
   Ans: No. When the reverse charge applies, the subcontractor does not add VAT to the amount payable by the customer.

3. Who pays VAT under the construction reverse charge?
   Ans: The customer accounts for the VAT to HMRC instead of the subcontractor collecting and accounting for it.

4. How does a subcontractor show reverse charge VAT on an invoice?
   Ans: The subcontractor should show the relevant VAT information and clearly state that the reverse charge applies. The VAT is not added to the amount payable.

5. Is there a minimum invoice value for the construction reverse charge?
   Ans: No general minimum value applies. An eligible transaction can be subject to the reverse charge regardless of its value.

6. Does the reverse charge affect subcontractor cash flow?
   Ans: Yes. Subcontractors do not receive the VAT amount from customers on qualifying reverse-charge invoices, which can affect cash flow.