How to write a domestic reverse charge invoice
If you're VAT registered and do CIS work for another VAT-registered contractor, you usually don't charge them VAT. They pay it to HMRC instead. Your invoice has to say so clearly. Here's when the reverse charge applies, what to write, and a full worked example with a CIS deduction.
On this page
What the domestic reverse charge is
Since 1 March 2021, most building and construction services supplied between VAT-registered businesses have been under the VAT domestic reverse charge. Instead of you charging VAT and paying it to HMRC, your customer works out the VAT and accounts for it on their own VAT return. It was brought in to stop VAT fraud in the sector.
For you as the subcontractor, the practical effect is simple: you still show the VAT on the invoice, but you don't add it to the amount the customer pays you.
When it applies
GOV.UK says you must use the reverse charge when all of these are true:
- you and your customer are both registered for VAT in the UK
- the work is reported under the Construction Industry Scheme (CIS)
- the service is standard rated (20%) or reduced rated (5%)
- the customer isn't an end user or an intermediary supplier
It covers the same construction operations as CIS: building, altering, repairing, demolishing, installing heating, lighting, plumbing and electrics, painting and decorating, scaffolding, site clearance and so on. GOV.UK lists exceptions that don't use it when supplied on their own, such as architects' and surveyors' work, installing security systems, and making or delivering materials.
When it doesn't apply
- End users. If the customer won't sell the construction services on (for example a business having its own office refitted, or a landlord), they're an end user and normal VAT applies. End users and intermediary suppliers should tell you in writing. Keep that confirmation.
- Homeowners and other consumers. Normal VAT applies, because they aren't VAT-registered businesses buying under CIS.
- Zero-rated work, such as some new-build housing. There's no VAT to reverse.
- Small reverse charge elements. HMRC's technical guide has a "5% disregard": where the reverse charge part of a single supply is 5% or less of its value, normal VAT can apply instead. It's based on the overall contract value, agreed by both sides at the start, not worked out invoice by invoice.
- You're not VAT registered. Then there's no VAT on your invoice at all.
Check before the first invoice. Ask the contractor to confirm their VAT and CIS registration and whether they're an end user, and check their VAT number.
What the invoice must show
A reverse charge invoice is still a VAT invoice, so it needs everything in our VAT invoice requirements guide. On top of that:
- a clear statement that the reverse charge applies. HMRC's examples include "Reverse charge: Customer to pay the VAT to HMRC" or "Reverse charge: S55A VATA 94 applies"
- the VAT rate and the amount of VAT the customer must account for (or enough to work it out)
- a total payable that doesn't include the VAT
Worked example with a CIS deduction
A VAT-registered plasterer, registered for CIS (20% deduction), does a week for a main contractor that is VAT registered and not an end user. Five days at £200 a day, plus £250 of materials bought for the job.
| Item | Amount |
|---|---|
| Labour: 5 days × £200.00 | £1,000.00 |
| Materials (at cost) | £250.00 |
| Total excluding VAT | £1,250.00 |
| VAT at 20%, to be accounted for by the customer | £250.00 |
| CIS deduction: 20% of labour £1,000.00 | −£200.00 |
| Amount payable | £1,050.00 |
Wording on the invoice: "Reverse charge: Customer to pay the VAT to HMRC. VAT at 20%: £250.00."
Check: £1,250.00 × 20% = £250.00, which is shown but not added. CIS is taken from labour only: £1,000.00 × 20% = £200.00. Materials and VAT are never part of the CIS deduction. £1,250.00 − £200.00 = £1,050.00. Without the reverse charge, the same invoice would have been £1,250.00 + £250.00 − £200.00 = £1,300.00, which shows the cash flow difference. See our CIS invoice guide for more on the labour and materials split.
On your VAT return
According to HMRC's technical guide, you don't include the reverse-charged VAT in your output tax, but you still report the net value of the sale in your sales figure. The contractor adds the VAT as output tax and, normally, reclaims it as input tax on the same return. If you use the Flat Rate Scheme, reverse charge sales are handled differently, so check HMRC's technical guide or ask an accountant.
This is general information, not tax advice. The reverse charge has detailed rules and exceptions, so check HMRC's technical guide or ask an accountant for anything unusual.
Frequently asked questions
What wording do I put on a reverse charge invoice?
State that the reverse charge applies, for example "Reverse charge: Customer to pay the VAT to HMRC", and show the VAT rate and amount the customer must account for.
Do I add the VAT to the total on a reverse charge invoice?
No. The VAT is shown for information, but the customer pays it to HMRC, so it isn't included in the amount payable to you.
Does the domestic reverse charge apply to homeowner jobs?
No. It only applies between VAT-registered businesses for CIS work where the customer isn't an end user. Homeowners are charged VAT as normal.
Is CIS deducted from the VAT?
No. The CIS deduction is worked out on the labour only, excluding VAT and materials.
Sources
- Check when you must use the VAT domestic reverse charge for building and construction services – GOV.UK
- VAT domestic reverse charge technical guide – GOV.UK
- What you must do as a Construction Industry Scheme (CIS) subcontractor – GOV.UK
- VAT guide (VAT Notice 700) – GOV.UK
This guide is general information, not legal, tax or financial advice. Rules and rates change, so check the linked GOV.UK pages for the current position.