Does the VAT domestic reverse charge apply to my construction work?

It applies when you are VAT-registered, your services are reported under CIS, and your customer is a VAT-registered CIS contractor who is not the end user. You do not charge VAT on that invoice, and your customer accounts for it to HMRC instead. It covers standard and reduced-rate work only.

How it works

For a job that falls under the reverse charge, your invoice shows the net amount with no VAT added, and states that the reverse charge applies and the customer must pay the VAT to HMRC. Your customer treats the VAT as both a charge and a cost on their own return.

Who is outside it

• Homeowners and other customers who are not VAT-registered CIS contractors. You charge normal VAT.
• End users and intermediary suppliers, where the customer confirms in writing that they are one. You charge normal VAT.
• Zero-rated work, such as certain new-build homes, because the scheme applies to standard and reduced-rate work only.

Cash flow

Because you are no longer collecting 20% VAT from these customers, you may hold less VAT cash and could even move into a repayment position on your returns. CIS deductions still apply to the net amount.

Worked example

What to do

1. For each customer, ask: are you VAT-registered, a CIS contractor and not the end user? Get the answer in writing.
2. Add the required reverse charge wording to invoices and set up your software.
3. Keep the confirmation with your records.
4. Check the sales and purchase boxes on your VAT return.

Common mistakes

• Applying one rule to every invoice.
• Charging VAT on a reverse charge job, leaving your customer unable to reclaim it.
• Not charging VAT when the customer is the end user.

Sources: GOV.UK: VAT domestic reverse charge for building and construction services