What is the VAT domestic reverse charge for construction and who pays the VAT?

Full answer

The domestic reverse charge for building and construction services shifts responsibility for VAT from the supplier to the customer. It applies to specified construction services between VAT-registered businesses reported under the Construction Industry Scheme (CIS), where the customer is not the end user. The aim is to combat missing-trader VAT fraud, where a supplier charges VAT but disappears before paying it. Worked example: a subcontractor does GBP 5,000 of qualifying work for a main contractor. Normally he would invoice GBP 5,000 plus GBP 1,000 VAT (20%) and pay that GBP 1,000 to HMRC. Under the reverse charge he invoices GBP 5,000 only, with a note such as 'reverse charge: customer to account for VAT to HMRC'. The contractor records GBP 1,000 as output VAT on its own return and, if entitled, reclaims the same GBP 1,000 as input VAT, so the net cash effect for a fully taxable contractor is nil. The subcontractor no longer holds the GBP 1,000, improving the contractor's exposure to fraud risk but reducing the subcontractor's cash flow. The charge applies only to standard-rated (20%) and reduced-rated (5%) construction services, not zero-rated work or supplies to end users such as the property owner. End users must notify suppliers in writing so normal VAT is charged. Flat-rate scheme users generally cannot use FRS for reverse-charge supplies and may need to leave the scheme. Use the VAT calculator to confirm the 20% figure the customer must self-account for. Because scope and end-user rules are detailed, verify whether a specific job qualifies at gov.uk.

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