If you're VAT-registered and work in construction, the domestic reverse charge turned normal VAT upside down: on most work for other VAT-and-CIS-registered businesses, you no longer charge VAT — your customer accounts for it instead. Get it wrong in either direction and someone's return is wrong.

When the reverse charge applies

Broadly: the supply is construction services within CIS, both you and your customer are VAT registered, the customer is CIS registered, and they are not an end user (or intermediary connected to one). Then you invoice without charging VAT, state that the reverse charge applies, and the customer accounts for the VAT on their own return.

When it doesn't

  • Domestic customers — normal VAT rules, charge as usual.
  • End users (a business customer who consumes the building work rather than selling it on) who confirm end-user status in writing.
  • Customers who aren't VAT registered, or work outside CIS.
  • Zero-rated work (e.g. qualifying new-build housing) — the reverse charge doesn't bite on zero-rated supplies.

What your invoice must say

A reverse-charge invoice shows no VAT charged, makes clear the customer must account for it — wording like "Reverse charge: customer to pay the VAT to HMRC" — and shows the VAT rate or amount the customer accounts for. Your labour/materials split for CIS sits alongside this, doing its own separate job.

The cash-flow sting

Subcontractors used to hold the VAT they charged until quarter end — useful working capital. Under the reverse charge that buffer is gone, and many subcontractors become repayment traders (reclaiming more than they charge). If that's you, monthly VAT returns can bring refunds forward.

VAT registration decisions and edge cases (mixed supplies, intermediaries, flat-rate interactions) genuinely warrant an accountant's eyes — this is orientation, not advice.

This article is general information for UK sole traders and subcontractors, not tax, accounting or financial advice. Rules change — check current HMRC guidance or speak to an accountant about your own position.