Domestic Reverse Charge

Key facts

The buyer accounts for the VAT instead of the supplier.
Most common in the construction industry (CIS-regulated services).
The supplier invoices without VAT and notes “reverse charge” on the invoice.
End users and non-CIS businesses are excluded from the construction reverse charge.

How the Domestic Reverse Charge Works

Normally, the supplier charges VAT and pays it to HMRC. Under the reverse charge, the customer accounts for the VAT instead. The supplier invoices without VAT, and the customer includes the VAT as both output and input on their own VAT Return.^[1]

Construction Reverse Charge

Since 1 March 2021, the domestic reverse charge for construction services applies to most building and construction services that are also subject to the Construction Industry Scheme (CIS).^[1]

It applies when:

The supply is of CIS-regulated construction services
Both supplier and customer are VAT-registered
The customer is not an end user or intermediary

How to Invoice

The supplier’s invoice must:

Show the net amount (no VAT added)
Include the note: “Reverse charge: Customer to account for VAT to HMRC”
State the VAT rate that would normally apply

How to Report on Your VAT Return

The customer accounts for the reverse charge as follows:^[1]

Box	Action
Box 1	Include the VAT amount (as output VAT)
Box 4	Include the same VAT amount (as input VAT, if entitled)
Box 6	Include the net value of the purchase
Box 7	Include the net value of the purchase

The effect is usually neutral — the VAT cancels out in Boxes 1 and 4.

Other Sectors Using Reverse Charge

The reverse charge also applies to:^[2]

Mobile phones and computer chips (above £5,000)
Gas and electricity (wholesale trading)
Emissions allowances
Renewable energy certificates

Why does the reverse charge exist? It was introduced to combat VAT fraud (particularly “missing trader” fraud), where a supplier charges VAT but disappears without paying it to HMRC.

Frequently Asked Questions

What is the VAT domestic reverse charge?

Under the domestic reverse charge, the customer accounts for the VAT instead of the supplier. The supplier invoices without VAT, and the customer includes the VAT as both output and input on their own VAT Return.

When does the construction reverse charge apply?

It applies when both supplier and customer are VAT-registered, the supply is of CIS-regulated construction services, and the customer is not an end user or intermediary.

How do I invoice under the reverse charge?

Show the net amount without VAT, state the VAT rate that would normally apply, and include the note: “Reverse charge: Customer to account for VAT to HMRC.”

Why was the reverse charge introduced?

The reverse charge was introduced to combat VAT fraud, particularly missing trader fraud (MTIC), where a supplier charges VAT to a customer but disappears without paying it to HMRC.

Sources

VAT domestic reverse charge for building and construction services — GOV.UK
VAT reverse charge on certain supplies — GOV.UK
VAT guide (VAT Notice 700) — GOV.UK