5 Things You Should Know About the VAT Reverse Charge

The construction domestic VAT reverse charge has applied since 1 March 2021. For qualifying supplies, the customer accounts for VAT to HMRC instead of paying that VAT to the supplier. This guide covers UK building and construction services, rather than every type of VAT reverse charge.

What is the construction VAT reverse charge?

It changes who accounts for the VAT on qualifying construction work. Before using it, check the nature of the supply, both businesses’ VAT status and the customer’s CIS and end-user position.

Follow HMRC’s guidance on when the charge applies.

Five things to check before invoicing

1. Check whether the supply qualifies

For a VAT-registered supplier, the usual conditions include a UK VAT-registered customer, payment reported within CIS, and standard- or reduced-rated construction services. Staff supplied by an employment business are treated differently.

See HMRC’s supplier checklist and confirm the customer’s status before choosing the VAT treatment.

2. Keep written end-user information

An end-user or intermediary-supplier notification can change the treatment. Keep the written notification with your records and check the HMRC rules for these exceptions.

3. Consider cash flow

Suppliers receive the net payment rather than the VAT-inclusive amount, which can affect cash flow. Review the impact with your accountant.

4. Check combined services and materials

A single construction supply may include materials and other services. Do not automatically treat every mixed invoice alike: check HMRC’s technical guidance for the supply and any concessions that apply.

5. Make the invoice clear

Show the normal required invoice information, identify the reverse charge, and show the VAT amount or rate for which the customer must account. Do not add reverse-charge VAT to the payment due.

See the invoice requirements.

Simple reverse-charge invoice example

Assume the conditions have been checked and a qualifying supply is £1,000 at a 20% VAT rate:

• Net value of the work: £1,000.
• Reverse-charge VAT for the customer to account for: £200.
• Amount payable to the supplier for this supply: £1,000.

Include a clear reverse-charge note explaining that the customer accounts for the VAT. This is an illustration of the calculation, not a complete invoice template.

How it works in Okappy

In Okappy, configure the relevant customer and invoice items for VAT reverse charge before raising the invoice. Check the resulting invoice and VAT treatment against the work supplied.

Follow the guide to creating a reverse-charge invoice. If you export invoices, use the specific Xero instructions or QuickBooks instructions.

Explore Okappy invoicing software or see the job-to-invoice workflow in a demo.

Further guidance

Keep VAT-registration questions separate from choosing the reverse-charge treatment. For detailed cases, consult HMRC’s technical guide and your accountant. You can also watch the existing Okappy VAT reverse charge webinar.