The VAT Domestic Reverse Charge was introduced in March 2021. It must be used for most supplies of building and construction services. If you are within the Construction Industry Scheme, it's important to understand how this works.
The charge applies to standard and reduced rate VAT services:
- for businesses who are registered for VAT in the UK
- reported within the Construction Industry Scheme (CIS)
It can be quite difficult to understand, but in essence, it means that when all parties involved are in the CIS scheme, a subcontractor will not charge VAT on its invoices to a VAT-registered contractor.
Therefore, the customer (the contractor), not the supplier (the sub-contractor), must account for the VAT in income and expenditures.
You need to understand when you must use the VAT domestic charge and when you mustn’t. The complete list of services can be found here – Check when you must use the VAT domestic reverse charge for building and construction services.
The VAT domestic reverse charge does not apply to taxable supplies made to the following customers:
- A non-VAT registered customer.
- 'End-users' i.e. a VAT registered customer who is not intending to make further ongoing supplies of construction.
- 'Intermediary suppliers'.
Actions for suppliers (sub-contractors)
Sub-contractors must not charge VAT when they sell to a contractor for CIS services. Instead, they must make sure that the invoice states clearly that the VAT domestic reverse charge applies, and the customer must take the VAT into consideration.
Actions for purchasers (contractors)
Contractors buying labour or labour plus materials from a subcontractor for CIS services should not be charged VAT. The invoice should clearly state that a VAT domestic charge applies. The output VAT is covered by the input VAT, so they balance out, so there will be no effect on a contractor’s VAT liability.
To ensure that you are adequately prepared to deal with the VAT domestic reverse charge, whether you are a sub-contractor or contractor, it is helpful to ensure the following:
- Accounting and bookkeeping teams need to consider invoicing and reporting obligations.
- All staff dealing with invoices are adequately trained and understand the requirements of the VAT domestic reverse charge.
- Monitor cash flow, as this will be affected, especially for those at the start of the supply chain.
If you are a CIS sub-contractor or contractor and would like some more advice on managing the VAT domestic charge, then contact us by calling 01623 490 120 or by emailing