Domestic Reverse Charge VAT Checker

What the VAT reverse charge actually is

Under normal VAT rules you charge your customer VAT, they pay it to you along with the rest of the invoice, and you hand it over to HMRC on your next return. The VAT domestic reverse charge for building and construction services flips that round. On a qualifying job you do not charge VAT at all. Your customer accounts for the VAT to HMRC themselves, and you get paid the net figure.

It came in on 1 March 2021 after two delays, and it exists to shut down missing trader fraud in construction supply chains — the old trick of a subcontractor invoicing with VAT, collecting it, and vanishing before paying HMRC. Move the VAT accounting up to the customer and there is nothing to run off with.

The word domestic trips up nearly everyone. It means UK-domestic, as opposed to cross-border. It has nothing to do with domestic customers. Work for a homeowner is never within the reverse charge, because a homeowner is not VAT-registered and does not report payments under CIS.

The conditions, in plain English

HMRC sets out the test as a list, and it is genuinely all-or-nothing. The reverse charge applies where all of the following are true:

• your customer is registered for VAT in the UK;
• payment for the supply is reported within the Construction Industry Scheme;
• the services you supply are standard rated or reduced rated;
• you are not an employment business supplying staff or workers, or both;
• your customer has not given written confirmation that they are an end user or intermediary supplier.

Implicit in all of that is that you are VAT-registered yourself. If you are not, you do not charge VAT on anything, and there is nothing for the reverse charge to shift.

Note the second condition carefully: it is about the payment being reported within CIS, not about what deduction rate applies to you. A subcontractor with gross payment status is still reported under CIS at a 0% deduction, so the payment is still within CIS and the reverse charge can still apply. If you want to see what the CIS deduction does to the same invoice, the free CIS deduction calculator runs the numbers.

Which work is inside CIS, and which is not

For most electricians the answer is simply yes — installing electrical systems in a building is a construction operation. HMRC's list of services the reverse charge applies to covers construction, alteration, repair, extension and demolition of buildings and structures; installing systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection; internal cleaning carried out during construction; painting and decorating; and the integral works around a job such as site clearance, excavation, foundations, scaffolding, site restoration and landscaping.

The exclusions matter more, because they are where sparks get caught out. Supplied on their own, the following are outside the reverse charge:

• drilling for or extracting oil or gas, and extracting minerals or tunnelling for that purpose;
• manufacturing building or engineering components, materials, plant or machinery, and delivering them;
• professional work by architects, surveyors, and consultants in building, engineering, interior or exterior decoration and landscape;
• making, installing and repairing artworks such as sculptures and murals;
• signwriting, and erecting or installing signboards and advertisements;
• installing seating, blinds and shutters;
• installing security systems, including burglar alarms, closed circuit television and public address systems.

That last one is the classic. Fit an intruder alarm on its own and it is outside the reverse charge. Fit the same alarm as part of a wider electrical installation that is within CIS and the whole supply follows the reverse charge treatment, because a mixed job takes the treatment of the reverse charge element.

End users, intermediary suppliers, and the writing rule

An end user, in HMRC's words, is a business or group of businesses that is VAT and CIS registered but does not make onward supplies of the building and construction services it receives. Think of a retailer having its own shop rewired, or a developer building for its own investment portfolio. They are the last stop for the work.

An intermediary supplier is a VAT and CIS registered business that is connected or linked to an end user — a landlord and tenant in the same group, or two companies with a common interest in the same land. They get the same treatment.

Here is the part the whole thing hinges on, and the part most people get wrong: the exemption only bites when the customer tells you in writingthat they are an end user or intermediary supplier. HMRC accepts a letter, an email, or a clause in the contract. What it does not accept is a verbal assurance on site. HMRC's position is explicit — if the customer does not confirm their end user status in writing and the supplies meet the conditions, you must account for VAT using the reverse charge.

So if a customer tells you over the phone that they are the end user, do not simply add 20% and hope. Send them the declaration wording, get it back by email, and file it. The checker above hands you that wording when you say the confirmation is verbal only. Once you have a notification you do not need a fresh one if the customer later moves between end user and intermediary supplier status.

Zero-rated work is outside it

The reverse charge only reaches standard-rated and reduced-rated supplies. Zero-rated construction work — most commonly for a spark, first and second fix in the course of constructing a genuinely new dwelling — is outside it, and you invoice at 0% in the normal way. HMRC goes a step further and confirms the reverse charge does not apply to standard-rated items that are included within an overall zero-rated supply of construction services. If the job as a whole is zero-rated, you are not hunting through it for standard-rated bits to reverse charge.

Mixed jobs and the 5% disregard

Where a single supply contains both reverse charge and non-reverse charge elements, the default is that the whole supply follows the reverse charge. HMRC offers one relaxation: if the reverse charge part of the supply is 5% or less of the value of the whole supply, it can be disregarded and normal VAT rules apply. This is known as the 5% disregard, and it is optional — you can use it, you are not obliged to. It also does not apply where there is a single supply whose predominant element is zero-rated.

There is a second sensible simplification worth knowing about. Where two parties have already had a reverse charge service between them on a construction site, they can agree between themselves to treat any further construction supplies on that site as reverse charge services. That saves re-running this decision every fortnight on a long job — but it has to be an agreement between both of you, not a unilateral decision.

Materials, labour and CIS together

This is where the reverse charge and CIS pull in opposite directions and cause a lot of confusion. CIS is deducted from labour only — never materials, never VAT. The reverse charge, by contrast, applies to the full invoice value. HMRC is clear that where goods are supplied together with construction services, that is a single supply for VAT purposes and the reverse charge applies to the whole thing, materials included.

So on a typical subcontract invoice you can have three things happening at once: no VAT collected from the customer, a reverse charge note covering the VAT on labour and materials combined, and a CIS deduction taken off the labour line. The CIS deductions guide walks through the arithmetic, and the VAT guide for electricians covers which rate applies before any of this starts.

What it does to your cash flow

Do not underestimate this one. Before the reverse charge, the VAT on your sales sat in your bank account between invoicing and your quarterly return, and plenty of small firms quietly used it as working capital. Under the reverse charge that money never arrives. If most of your work is subcontracting to VAT-registered contractors, your monthly receipts drop by roughly a fifth overnight while your costs stay where they are.

Two practical consequences. First, you may find you are regularly in a VAT repayment position, because you are still reclaiming input VAT on materials and van costs but declaring little or no output VAT — moving to monthly VAT returns can get that money back faster. Second, reverse charge supplies are excluded from the VAT Flat Rate Scheme, so if you are on flat rate and a large slice of your turnover becomes reverse charge work, sit down with your accountant and check the scheme still makes sense.

What goes on the invoice

A reverse charge invoice still needs everything a normal VAT invoice needs, plus two extras: a clear reference to the reverse charge, and a statement of the VAT that the customer has to account for. HMRC accepts wording such as "reverse charge: VAT Act 1994 Section 55A applies", "reverse charge: S55A VATA 94 applies", or "reverse charge: Customer to pay the VAT to HMRC". The VAT amount must be stated clearly, but must not be included in the total VAT charged.

The checker gives you a copy-ready block with the reference and the figure already worked out. For the full treatment — every line a reverse charge invoice needs and three complete worked examples — see reverse charge invoice wording and examples.

What your customer does with it

Worth knowing, if only so you can answer the question when a contractor queries your invoice. Your customer enters the VAT you have flagged as output tax in box 1 of their VAT return, reclaims the same figure as input tax in box 4 on that same return (subject to the normal input tax rules), and puts the VAT-exclusive value of the purchase in box 7. For a fully taxable business it nets to nothing. They do not enter it as a sale in box 6.

Five mistakes that cost money

1. Taking end user status on trust. No written notification, no exemption. Apply the reverse charge until the email lands.
2. Adding VAT to the total anyway "to be safe". Charging VAT that should have been reverse charged means your customer cannot reclaim it and will send the invoice straight back.
3. Leaving the VAT figure off entirely. The invoice must still show the VAT rate and the amount the customer needs to account for. A net-only invoice with no reverse charge note is not enough.
4. Splitting out the alarm or the design element. On a mixed supply the reverse charge element normally pulls the whole invoice with it. Do not invent two treatments on one invoice.
5. Forgetting the Flat Rate Scheme interaction. Reverse charge supplies are excluded from flat rate, and staying on the scheme can quietly cost you.

Where these rules come from

Everything this tool decides is drawn from HMRC's own guidance. If you want to read the source, or you have a case the checker will not settle:

• VAT domestic reverse charge for building and construction services (GOV.UK) — the services it applies to and the services it must not be used for.
• VAT reverse charge technical guide (GOV.UK) — the conditions, end users and intermediary suppliers, notifications, and the 5% disregard.
• VAT Notice 735: the VAT domestic reverse charge procedure (GOV.UK) — invoicing, credit notes, self-billing and how the customer accounts for the VAT.