VAT Domestic Reverse Charge for Construction Services
The VAT domestic reverse charge changes who accounts for VAT on certain construction services. Instead of the supplier charging VAT, the VAT-registered customer records the VAT on its own VAT return.
The rules are designed to reduce VAT fraud within construction supply chains. They do not apply to every construction invoice.
When Does the Reverse Charge Apply?
It generally applies where:
- The supply is within the scope of CIS
- The supplier and customer are VAT registered
- The supply is standard or reduced rated
- The customer makes an onward supply of construction services
- The customer is not an end user or qualifying intermediary supplier
Employment businesses supplying workers are normally outside the construction reverse charge, even though the work performed may be construction-related.
End Users
An end user receives construction services for its own use rather than making an onward construction supply. Property developers, landlords and other businesses may be end users in some circumstances.
The customer should notify the supplier in writing when end-user or intermediary-supplier treatment applies. Without clear communication, invoices may be raised incorrectly.
Supplier Responsibilities
The supplier should verify the customer’s VAT status and consider whether CIS and the reverse charge apply. A reverse-charge invoice should show the required VAT information and make clear that the customer must account for VAT.
The supplier records the net sale in Box 6 of its VAT return but does not include the reverse-charge VAT in Box 1.
Customer Responsibilities
The customer accounts for output VAT in Box 1 and, subject to the normal recovery rules, reclaims it in Box 4. The net purchase is included in Box 7.
Although the entries may offset for a business with full VAT recovery, incorrect treatment can still lead to errors, interest and additional work. Businesses using the Flat Rate Scheme need particular care because reverse-charge transactions sit outside the normal flat-rate calculation.
Credit notes and advance payments must follow the same underlying reverse-charge decision. Software settings should be tested so the invoice wording and VAT return boxes are correct.
Check Each Supply
Confirm the nature of the work, VAT and CIS status, supply chain and end-user position before invoicing. Keep written evidence supporting the decision.
GMS Accountants helps contractors and subcontractors in Cambridge and Nottingham with CIS and VAT returns. Contact us for practical reverse-charge support.
