The domestic reverse charge changes who accounts for VAT; it does not change the underlying value of the construction work. Use a documented decision before invoicing or processing a supplier bill.
Use the decision test in this order
- Is the supplier UK VAT registered or required to be registered?
- Is the customer UK VAT registered or required to be registered?
- Is the supply standard-rated or reduced-rated construction work?
- Is payment for the supply required to be reported under CIS by the customer? If the supplier is genuinely unable to confirm that point and is therefore unsure whether the reverse charge applies, HMRC says to charge VAT as normal; retain the checks, correspondence and documented basis and obtain advice where uncertainty remains.
- Is the supply something other than a genuine employment-business supply of staff or workers?
- Has the customer provided a valid written end-user or intermediary-supplier notification? Yes: normal VAT rules ordinarily apply. No: where the other conditions are established, the domestic reverse charge ordinarily applies.
The supplier’s own CIS deduction status — gross payment status, 20% or 30% — does not decide the VAT treatment. If the supplier is genuinely unable to confirm whether the customer is required to report the payment through CIS, HMRC says the supplier should charge VAT as normal. Retain the checks, customer correspondence and documented basis. Obtain advice where the facts remain uncertain. This narrow uncertainty rule is not an alternative to the end-user notification rule: if the other reverse-charge conditions are established and an eligible customer has not issued a valid end-user or intermediary-supplier notification, the reverse charge ordinarily continues to apply.
Worker supply is not the same as labour-only construction
A genuine employment business that supplies staff or workers is normally outside the reverse charge because the customer controls and is responsible for the work. A labour-only subcontractor responsible for specified construction work and defects may still supply construction services to which the reverse charge applies. A common failure is applying the reverse charge to a genuine employment-business staff supply while incorrectly excluding labour-only subcontractors that are actually supplying construction services.
Labour and materials
Do not use the CIS labour-only deduction base as the VAT reverse-charge value. CIS deductions may be calculated after removing qualifying materials and VAT. Where the reverse charge applies, it normally applies to the full value of the qualifying labour-and-materials supply. Mixed or genuinely separate supplies can require specific review.
When the domestic reverse charge does not apply
- Customer not UK VAT registered or required to register: the domestic reverse charge does not apply; the supplier follows the ordinary VAT liability of the supply.
- Supplier not VAT registered and not required to register: the supplier does not charge VAT.
- Supplier required to register but not registered: do not treat non-registration as an ordinary no-VAT outcome; registration and retrospective correction may be required.
- Payment not required to be reported under CIS: the domestic reverse charge does not apply; use the correct ordinary VAT treatment.
- Valid written end-user or intermediary-supplier notification: normal VAT rules ordinarily apply.
- Zero-rated supply: apply zero-rating where its conditions are met; this is not a normal standard-rate invoice.
- Exempt or outside-scope transaction: apply that treatment rather than describing it as normal VAT.
- Genuine employment-business supply of staff or workers: the construction reverse charge does not apply, but the ordinary VAT liability must still be determined.
Invoices and VAT returns
A reverse-charge invoice must contain the information normally required on a VAT invoice, make clear that the domestic reverse charge applies and that the customer must account for the VAT, and clearly state the amount of VAT due under the reverse charge. Where the invoicing system cannot show that amount, state the applicable VAT rate, add suitable customer-accounting wording, and make the reverse-charge items identifiable. Use wording supported by HMRC, for example ‘Reverse charge: customer to pay the VAT to HMRC’. Reverse-charge VAT must not be added to the amount payable to the supplier. Keep the customer evidence and decision record with the invoice.
| Party | Normal VAT | Domestic reverse charge |
|---|---|---|
| Supplier invoice/cash | Charges and collects VAT | States the reverse charge and customer-accounting requirement; shows the VAT amount, or uses the applicable-rate and suitable-wording fallback where the system cannot show the amount; does not collect the VAT |
| Supplier VAT return | Output VAT normally in Box 1; net sale in Box 6 | No reverse-charge output VAT in Box 1; net sale in Box 6 |
| Customer VAT return | Input tax normally in Box 4 subject to recovery rules; net purchase in Box 7 | Accounts for output tax in Box 1 and corresponding input tax in Box 4 subject to recovery rules; net purchase in Box 7 |
Worked cash-flow examples
| Example | Invoice and VAT | Customer cash to supplier | VAT-accounting point |
|---|---|---|---|
| Normal VAT | £10,000 + £2,000 VAT | £12,000 | Supplier accounts for £2,000 output VAT; customer considers input recovery |
| Domestic reverse charge | £10,000 net; £2,000 reverse-charge VAT shown but not collected | £10,000 | Customer accounts for £2,000 output VAT and may recover input tax subject to the normal rules |
Mixed supplies and two separate 5% concessions
Apply HMRC's single- and mixed-supply principles before splitting a contract. A single supply containing reverse-charge and other elements may be treated under the reverse charge according to the technical guide; genuinely separate supplies can differ. Do not split labour and materials merely to force a preferred VAT result. HMRC distinguishes the following two concessions expressly. They use different percentage tests and lead to normal VAT only where their own conditions are satisfied.
Predominantly end-user customer with limited onward re-supply
Where a business customer is predominantly an end user but re-supplies less than 5% by value of the construction services it receives, HMRC permits the customer to issue an end-user declaration. The test concerns the customer’s onward re-supply and the amount must be less than 5%, not 5% or less. The customer chooses whether to issue the declaration. Once the supplier accepts and retains the valid written declaration, normal VAT rules apply rather than the domestic reverse charge. This concession permits end-user treatment; it does not cause the reverse charge to apply. Worked example — predominantly end user: a customer receives £100,000 of construction services and re-supplies £4,000 by value. Because the onward re-supply is less than 5%, the customer may choose to issue an end-user declaration. If the supplier accepts and retains it, normal VAT rules apply. An onward re-supply of exactly £5,000 would not satisfy this less-than-5% concession.
Minor reverse-charge element within a single supply
Where only a minor element of a single supply would be subject to the reverse charge and that element is 5% or less of the whole supply value, the supplier and customer may agree to disregard the reverse-charge element and apply normal VAT rules. The concession is optional. The parties must agree from the start of the contract and calculate the percentage using overall contract values. It must not be calculated separately invoice by invoice. The parties must retain a reasonable calculation and agreement. The concession does not apply where the predominant element of the single supply is zero-rated. If the concession is not used, the usual single-supply reverse-charge treatment may apply. Worked example — minor reverse-charge element: a single £100,000 contract includes a £5,000 element that would otherwise be reverse charged, and the predominant element is not zero-rated. If supplier and customer agree from the start and retain the contract-value calculation, they may disregard that 5% element and apply normal VAT rules. Without that agreement, the usual single-supply reverse-charge treatment may apply.
Evidence to retain
- Customer VAT registration details.
- Evidence or confirmation that the customer is a contractor required to report the payment under CIS.
- Where CIS reporting genuinely cannot be confirmed, retain the checks made, customer correspondence and the documented basis for charging VAT as normal; record any advice obtained.
- Any written end-user or intermediary-supplier notification — or a clear record that no valid written notification was received where the other reverse-charge conditions were established.
- Contract or order and relevant invoice.
- For either 5% concession, the applicable written declaration or mutual agreement and a reasonable contract-value calculation.
- Documented basis for the VAT decision and any later correction.
Common failures
- Using the supplier's CIS deduction rate as the VAT decision.
- Treating all labour supplies as excluded or all worker supplies as included without checking responsibility for the work.
- Reverse-charging only the labour while charging normal VAT on related materials within one qualifying supply.
- Using a double-negative end-user question, failing to obtain written notification, or accepting wording that does not identify the customer's status clearly.
- Treating a missing end-user or intermediary-supplier notification as a normal-VAT result even though the other reverse-charge conditions are established.
- Using the genuine CIS-status uncertainty rule without retaining the checks, correspondence and documented basis.
- Treating a supplier who was required to register but failed to do so as an ordinary no-VAT case.
- Collecting the reverse-charge VAT in cash, omitting the required wording, or insisting that every system must display both rate and amount despite HMRC's amount-or-rate fallback.
- Entering the supplier/customer VAT-return boxes as though both parties were using normal VAT.
- Confusing the predominantly-end-user re-supply concession with the separate minor reverse-charge-element concession, or applying either without its particular percentage test, agreement, notification and contract-value conditions.
Related FoxSums resources
- When Should a Small Business Register for VAT?
- VAT Registration: Voluntary or Mandatory?
- VAT Reverse-Charge Invoice Checklist and Examples
- VAT on Construction Work: Rate Decision Guide
Next step
Use the reverse-charge invoice checklist when the supply and customer need a closer review.
Important
General information only. Check the facts and current official guidance for the business’s circumstances.
Sources and review
- Evidence check date: 2 November 2026. This is a specialist construction and trades resource; it is not presented as general small-business compliance guidance.
- HMRC - VAT domestic reverse charge for building and construction services
- HMRC - VAT reverse charge technical guide