Insight · Tax and CIS

The VAT reverse charge,
and who accounts for the VAT.

Five years in and it still catches firms out on every second invoice. When it applies, when it does not, the written statement that switches it off, and the wording your invoice has to carry.

Published 20 August 2026·8 min read·Written by Unibuild

The VAT domestic reverse charge moves responsibility for accounting for VAT from the supplier to the customer. It applies to most construction services between VAT registered businesses where the payment is reported under CIS, at the standard or reduced rate. The supplier issues an invoice with no VAT added, states that the reverse charge applies, and the customer accounts for the VAT on its own return.

What it actually changes

Before March 2021 a subcontractor invoiced £10,000 plus £2,000 VAT, collected £12,000, and paid £2,000 over to HMRC at the end of the quarter. In the meantime that £2,000 sat in the business.

Under the reverse charge the same subcontractor invoices £10,000, adds no VAT, notes on the invoice that the reverse charge applies, and receives £10,000. The customer accounts for the £2,000 as output tax on its own return and, where it is entitled to, recovers the same £2,000 as input tax on the same return. The net cash effect for the customer is usually nil. The net cash effect for the supplier is that a sum it used to hold for up to three months no longer arrives at all.

That is the point of the measure. It was introduced on 1 March 2021 to attack missing trader fraud, where a supplier collected VAT and disappeared before paying it over. If the money never reaches the supplier, it cannot go missing with the supplier. Whatever you think of it as policy, understanding that it is an anti-fraud measure explains why the rules are drawn the way they are, and why the burden of getting it right sits with the person raising the invoice.

It did not change what anybody owes. It changed who holds the money in the meantime, and for a subcontractor that was a permanent reduction in working capital.

The conditions, all of which have to be true

The reverse charge applies where all of the following are met.

The supply is of construction services within the scope of CIS. That covers the obvious things and a good deal beyond them: construction, alteration, repair and demolition of buildings and structures, works to land such as roads, railways, docks and pipelines, installation of systems for heating, lighting, drainage, ventilation and fire protection, internal cleaning during construction, painting and decorating, and integral works such as site clearance, scaffolding and landscaping.
The supply is standard rated or reduced rated. Zero-rated supplies are outside it, which matters on new-build housing.
Both parties are VAT registered in the UK.
The payment is reported under CIS.
The customer is not an end user or an intermediary supplier, or is one and has not told you so in writing.

That last condition is where most of the trouble lives, and it is covered on its own below.

When it does not apply

Several services sit outside the charge even when supplied on a construction site, and HMRC lists them specifically. Supplied on their own, these are outside it: drilling for or extracting oil, gas or minerals; manufacturing building or engineering components, materials, plant or machinery, and delivering them; professional work by architects, surveyors and consultants; installing seating, blinds and shutters; installing security systems including burglar alarms, closed circuit television and public address systems; making, installing and repairing artwork such as sculptures and murals; and signwriting and erecting advertising hoardings.

Two practical notes on that list. The word supplied on its own is doing real work: where an excluded service is part of a larger supply that is otherwise within CIS, the position can change. And the professional services exclusion is the one most often misapplied, because a firm doing both design and installation is not automatically outside the charge for the whole contract.

End users, intermediary suppliers, and the written statement

This is the part worth reading twice.

An end user is a business, or group of businesses, that is VAT and CIS registered but does not make onward supplies of the construction services it receives. A developer having its own building refurbished is the standard example: it is in the chain for CIS purposes, but the work stops with it.

An intermediary supplier is a VAT and CIS registered business that is connected or linked to an end user, and that buys construction services and resupplies them to that connected end user. Group structures where one company holds the contracts and another occupies the building are the common case.

Supplies to either are outside the reverse charge. But, and this is the bit that catches firms out every month, that only takes effect when the customer tells the supplier in writing that it is an end user or an intermediary supplier. HMRC's position is explicit: where no such notification has been given and the other conditions are met, the supplier applies the reverse charge.

So the default runs the opposite way to most people's instinct. Nobody has to give you permission to use the reverse charge. Somebody has to give you a written statement to stop you. If you are holding a verbal assurance, a conversation on site, or an assumption based on who the customer appears to be, you are holding nothing, and the exposure is yours rather than theirs.

The practical answer is to make the statement part of onboarding rather than part of the argument. Ask for it when the order is placed, keep it with the order, and know which of your customers have given one. It is a short document and it does not need a solicitor. It needs to exist, to be in writing, and to be findable in eighteen months when somebody asks why an invoice was raised the way it was.

What the invoice has to carry

A reverse charge invoice shows everything a normal VAT invoice shows, plus a note making clear that the reverse charge applies and that the customer is required to account for the VAT.

On the figures, HMRC asks you to state clearly how much VAT is due under the reverse charge, or the rate at which it falls due, and then, critically, not to include that VAT in the amount charged to the customer. So the invoice says the VAT is £2,000 at 20% under the reverse charge, and the total the customer is asked to pay is £10,000.

Wording that satisfies this in practice is short. Something to the effect of: reverse charge, customer to account to HMRC for the VAT, VAT Act 1994 section 55A applies. What matters is that the invoice says the reverse charge applies and that the customer accounts for the VAT, not that it repeats any particular sentence.

The 5% disregard, and what it is not

Where the reverse charge element is 5% or less of the value of a supply, it can be disregarded and the whole supply treated under normal VAT rules.

Two constraints stop this being the escape hatch people hope for. It is agreed by both parties at the start of the contract, on the overall contracted values, rather than reassessed each time an invoice is raised. And normal VAT rules only then apply where the customer has provided its end user or intermediary supplier notification. It is a sensible relief for a predominantly non-construction contract with a small construction element. It is not a way to opt out of the charge on a job that turns out to be mostly construction after all.

What it did to your cash, and what to do about it

For a subcontractor the reverse charge removed a working capital cushion that a lot of firms had been running on without ever describing it that way. VAT collected on sales and not yet paid over was, in effect, an interest-free overdraft that refilled every quarter. It is gone, and it is not coming back.

Two consequences worth planning around. Firms that go from paying VAT over each quarter to reclaiming it may move into a repayment position, and monthly rather than quarterly returns can be worth considering where that is the case, because it brings the repayment forward. And any cash forecast built on pre-2021 habits is overstating what will be in the account, which compounds with everything else taking a slice on the way through. That compounding is the subject of the gap between doing the work and having the money.

This is tax, and the position turns on facts specific to your contracts and your VAT registration. Treat the above as the shape of the rules rather than as advice on your own affairs, and check the detail with your accountant before you change how you invoice.

Where this touches the platform

Be clear about the boundary first: Unibuild is not an accounting system and it does not decide the VAT treatment of a supply. That sits with the package you file from, and with your accountant. What it holds is the context that decides the treatment and the evidence that it was applied consistently. A subcontractor's invoice is captured as a record against the order it belongs to, with its own document attached, so the cost lands on the right project whatever the VAT position. On the subcontract side the order carries its terms as structured fields, which is where a customer's end user statement belongs: with the order, findable, rather than in an inbox. If your problem is deciding the treatment, this is not the tool. If your problem is proving eighteen months later why an invoice was raised the way it was, it is.

Financial and invoicing Subcontractor management Documents and certificates The CIS deductions guide

Where to start, on Monday

Take your customer list and put every VAT registered, CIS registered customer into one of two columns: those who have given you a written end user or intermediary supplier statement, and those who have not. The second column is where your exposure is, because on every one of those the reverse charge is the default and any invoice you have raised with VAT added may be wrong.

Then do the same exercise pointing the other way. For every subcontractor invoicing you, are they applying the charge correctly, and have you told them in writing where you are an end user. A firm that has never issued a statement to anybody is almost certainly being invoiced correctly, which is the one comfortable answer this exercise produces.

Asked most often

The follow-up questions.

The deduction side of the same invoice is covered in the CIS deductions guide, and getting those deductions back in reclaiming CIS deductions.

When does the VAT reverse charge apply in construction?+

Where the supply is of construction services within the scope of CIS, is standard rated or reduced rated, both parties are VAT registered in the UK, the payment is reported under CIS, and the customer is not an end user or intermediary supplier who has told you so in writing. All of those must be true. It came into force on 1 March 2021.

Do I charge VAT to a main contractor?+

Normally no, where the reverse charge conditions are met. You invoice without adding VAT, note on the invoice that the reverse charge applies and that the customer must account for the VAT, and the contractor accounts for it on its own return. You only charge VAT in the normal way if the customer has given you written notice that it is an end user or intermediary supplier, or another condition is not met.

What is an end user statement and does it have to be in writing?+

It is the customer telling you that it is an end user, meaning a VAT and CIS registered business that does not make onward supplies of the construction services it receives. It must be in writing. HMRC's position is that where no written notification has been given and the other conditions are met, the supplier applies the reverse charge. A verbal assurance does not change the treatment.

What wording goes on a reverse charge invoice?+

Everything a normal VAT invoice carries, plus a note that the reverse charge applies and that the customer is required to account for the VAT. State how much VAT is due under the reverse charge, or the rate, but do not include that VAT in the amount charged. So the invoice might show VAT of £2,000 at 20% under the reverse charge while asking the customer to pay £10,000.

Does the reverse charge apply to zero-rated new build work?+

No. The reverse charge covers supplies at the standard and reduced rates. Zero-rated supplies fall outside it, which is why it does not apply to much new-build residential work. The rate of the supply has to be established first, because a zero-rated supply is outside the charge regardless of the CIS position.

What is the 5% disregard?+

Where the reverse charge element is 5% or less of the value of a supply, it can be disregarded and normal VAT rules applied. It is agreed by both parties at the start of the contract on the overall contracted values, not reassessed invoice by invoice, and normal rules then apply only where the customer has given its end user or intermediary supplier notification.

Which services are outside the reverse charge?+

Supplied on their own, HMRC excludes drilling for oil, gas or minerals, manufacturing and delivering building components and materials, professional services from architects, surveyors and consultants, installing seating, blinds and shutters, installing security systems such as alarms and CCTV, making and installing artwork, and signwriting and advertising hoardings. Where an excluded service forms part of a larger supply that is otherwise within CIS, the position can differ.