VAT Domestic Reverse Charge for Construction: A Simple 2026 Guide

What is the reverse charge?

Normally, you add VAT to your invoice, your customer pays it to you, and you pass it to HMRC. Under the reverse charge, you do not add VAT to the amount your customer pays. Instead, your customer accounts for the VAT directly on its own VAT return. HMRC introduced the rule to tackle VAT fraud in the building trade.

Does it apply to you?

The reverse charge applies when all of these are true:

• You and your customer are VAT-registered in the UK.
• The work is reported under the Construction Industry Scheme (CIS).
• The work is standard-rated (20%) or reduced-rated (5%).
• Your customer is not an end user or intermediary supplier, so it is selling the work on as part of its own construction services.
• The reverse charge part is more than 5% of the value of the supply.

If any of these conditions is not met, you normally charge VAT in the usual way.

What work is included and excluded?

Included: most building and civil engineering work, including construction, repairs, extensions, demolition, painting and decorating, and installing heating, lighting or power.

Excluded: professional services such as architects, surveyors and consultants, materials supplied without installation, installing security systems (including alarms and CCTV), installing seating, blinds and shutters, signwriting, artistic works, and zero-rated work such as building a new home. See the full lists in HMRC's reverse charge guidance.

Materials, or labour and materials?

If you only supply materials - for example, you deliver timber or fittings but do not install them - that is not a construction service for this rule, so you charge VAT normally.

However, where you supply materials as part of the building work, the reverse charge applies to the whole invoice, including the materials. Do not split the invoice into separate materials and labour elements where they belong to the same construction service.

The 5% disregard

Where a single supply includes a small amount of reverse charge work, and that part is 5% or less of the whole supply's value, you can disregard it and charge VAT as normal on the invoice.

A similar 5% disregard lets a customer that is mainly an end user still give you an end user notice, even if it re-supplies a very small part of the work.

What is an end user or intermediary supplier?

An end user is a business that receives building work but does not sell that work on, such as a shop owner having a store fitted out. The reverse charge does not apply when an end user gives its supplier written notification of that status.

An intermediary supplier is a VAT- and CIS-registered business connected or linked to an end user that re-supplies the construction services without material alteration. It can be treated in the same way as an end user when it notifies its supplier in writing.

If your customer is an end user or intermediary supplier, it must tell you in writing. HMRC suggests wording such as: We are an end user for the purposes of section 55A VAT Act 1994 reverse charge for building and construction services. Issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge. Keep that confirmation with your records. If it does not confirm its status in writing and the other conditions apply, use the reverse charge.

Check your customer first

Unless you only sell to homeowners, ask each business customer before you start work whether it is VAT and CIS registered and whether it is an end user or intermediary supplier. Check its VAT number, and confirm its CIS registration, before you invoice under the reverse charge. Keep a record of what you checked and when.

How to invoice under the reverse charge

When the reverse charge applies:

• Do not add VAT to the total payable by your customer.
• Show the VAT rate or amount for information.
• Add wording such as Reverse charge: VAT Act 1994 Section 55A applies or Reverse charge: Customer to pay the VAT to HMRC.

A quick example

You are a VAT-registered electrician doing £10,000 of wiring for a larger VAT-registered building contractor on a housing project. The contractor is passing your work on as part of its own construction services, so it is not an end user and the reverse charge applies.

You invoice £10,000 only, with no VAT added to the amount payable, and show that £2,000 VAT at 20% is subject to the reverse charge. The contractor pays you £10,000 and accounts for the £2,000 on its VAT return. You do not handle that VAT.

Recording it on your VAT return

• Supplier: put nothing in Box 1 and put the net sale value in Box 6.
• Customer: put the VAT in Box 1 and reclaim the same amount in Box 4 where eligible; put the net value in Box 7.

These records must be kept digitally. If you use spreadsheets, MTD VAT bridging software can help you submit directly from them. See our guide on how to file VAT returns with MTD for the filing steps.

Flat Rate and Cash Accounting schemes

• Flat Rate Scheme: reverse charge sales are left out of your flat rate turnover. If you buy reverse charge services while on the scheme, you account for the VAT and reclaim it on the same VAT return, outside the scheme.
• Cash Accounting Scheme: you cannot use it for reverse charge sales or purchases. You can keep using it for your other sales.

Subcontractors on the Flat Rate Scheme should check whether it still suits them, as they no longer receive VAT on reverse charge sales but cannot reclaim VAT on materials.

What to do if you get it wrong

If you charged VAT when the reverse charge should have applied, issue a corrected invoice or credit note and tell your customer promptly. If you used the reverse charge when you should have charged VAT, issue a corrected invoice that adds the VAT. Acting quickly helps both businesses keep their VAT returns consistent.

Why this matters in 2026

The construction reverse-charge rules have applied since 2021, but VAT compliance remains relevant to CIS Gross Payment Status. From April 2026, HMRC can cancel Gross Payment Status immediately where a business knew, or should have known, that a transaction was linked to tax fraud. Correct reverse-charge invoices help protect both your VAT position and your CIS status.

Getting VAT back: monthly returns

Under the reverse charge your customers no longer pay you VAT, but you still pay VAT on materials, tools and vans. Many subcontractors find HMRC owes them money on every return. If that is you, you can apply through your online VAT account to file monthly, so repayments arrive sooner.

Need a hand?

Once your invoices and VAT return are set up correctly, the reverse charge becomes routine. You may also find our guide to VAT on labour costs useful, as it covers the same trades audience.

Read the official GOV.UK construction domestic reverse-charge guidance for the current rules.

Disclaimer: This guide provides general information, not tax advice. VAT rules depend on your exact circumstances, so check the latest HMRC guidance or speak to a qualified adviser.