What is the VAT domestic reverse charge in construction?

The VAT domestic reverse charge is a rule for construction services where the customer accounts for the VAT to HMRC instead of the supplier charging it. It applies to most standard and reduced rate construction services between VAT-registered businesses when payment is reported under CIS (GOV.UK, 2026). It started on 1 March 2021.

The domestic reverse charge lands differently on each side of a subcontract. The subcontractor stops receiving VAT on its invoices, and the contractor accounts for that VAT on its own return. Checking every customer and every invoice turns it into a compliance job, which is why finance teams treat reverse charge VAT as governance, the same as CIS.

How does the domestic reverse charge work?

Under the domestic reverse charge, the supplier doesn't charge VAT to its customer. The customer declares the VAT on its own VAT return and reclaims it in the usual way (GOV.UK, 2026). In practice:

1. The supplier checks the customer. It confirms the customer has a valid VAT number and is registered for CIS, unless the customer has said in writing that it's an end user or intermediary supplier.
2. The supplier invoices without VAT. The invoice shows that the reverse charge applies, and the supplier enters no output tax on the sale.
3. The customer accounts for the VAT. It records the reverse charge on its VAT return and reclaims it in the usual way.

When does the reverse charge apply?

The reverse charge applies when all of these are true (GOV.UK, 2026):

• The customer is VAT registered
• Payment for the supply is reported under CIS
• The services are standard or reduced rated
• The supplier isn't an employment business supplying staff or workers
• The customer hasn't confirmed in writing that it's an end user or intermediary supplier

The services covered match the construction operations in CIS. They include building, altering, repairing and demolishing, installing heating, lighting, drainage and fire protection systems, and painting and decorating. Site preparation such as site clearance, earth-moving, foundations and scaffolding counts too.

When doesn't the reverse charge apply?

The reverse charge doesn't apply in these cases (GOV.UK, 2026):

• Supplies to customers who aren't VAT registered, such as homeowners
• Supplies to end users and intermediary suppliers who've told the supplier in writing
• The professional work of architects and surveyors, or of consultants, when supplied on its own
• Manufacturing or delivering materials, components, plant or machinery to site, when supplied on its own
• Installing security systems, seating, blinds or shutters, when supplied on their own

What is an end user?

An end user is a VAT and CIS registered business that doesn't make onward supplies of the construction services it receives (GOV.UK, 2026). Building contractors usually aren't end users, because they sell the work on. An end user tells its supplier in writing, and the supplier then charges VAT in the normal way.

How is the reverse charge different from CIS?

CIS deals with the subcontractor's income tax and National Insurance, while the reverse charge deals with VAT. The two are linked because the reverse charge only applies to payments reported under CIS. That's why one subcontractor invoice often carries both: a CIS deduction on the labour and no VAT charged.

Why does the reverse charge matter for cash flow?

Subcontractors no longer receive VAT from their customers, which reduces the gross value of the payments coming into the business (GOV.UK, 2026). They still pay VAT on their own purchases, so a subcontractor can end up making net repayment claims to HMRC, and it can apply to move to monthly VAT returns to get that money back sooner.

For specialist subcontractors, that shows up straight away in day-to-day cash.

How does Eque2 handle the reverse charge?

Eque2 brings CIS and reverse charge VAT management together, helping contractors apply the correct VAT treatment to customers and subcontractors while simplifying CIS compliance with online HMRC verification and return submissions.

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Eque2 handles reverse charge VAT in the same ledger as CIS. Contractors running Sage or Xero use job costing software that supports construction projects manage costs, handle billing processes and remain compliant with CIS, MTD and Reverse VAT Charge.

For larger contractors, Evision includes CIS and VAT compliance among its construction-specific apps on Microsoft Dynamics 365 Business Central.

FAQs: VAT domestic reverse charge

When did the domestic reverse charge start?

The VAT domestic reverse charge for building and construction services started on 1 March 2021, after two delays from its original October 2019 start (GOV.UK, 2026). Invoices with a tax point on or after 1 March 2021 fall under the reverse charge wherever the conditions are met.

What must a reverse charge invoice show?

A reverse charge invoice must show that the reverse charge applies, so the customer knows to account for the VAT itself (GOV.UK, 2026). HMRC's technical guide sets out what to include. Before raising it, the supplier checks the customer's VAT number and CIS registration, unless the customer has confirmed in writing that it's an end user.

What is the 5% disregard?

If the reverse charge part of a single supply is 5% or less of its total value, it can be disregarded and normal VAT rules apply to the whole supply (GOV.UK, 2026). Without it, one minor construction element would pull the entire invoice under the reverse charge, even when most of the supply is something else.

About Eque2

Eque2 is the commercial and finance platform for construction, trusted by over 3,000 construction businesses. Construct brings job costing and contract management to the Sage or Xero accounts a contractor already runs. Evision runs construction commercial and finance management for larger contractors and housebuilders on Microsoft Dynamics 365 Business Central.