CIS Domestic Reverse Charge VAT: A Complete Guide for UK Construction Workers 2026

What Is the CIS Domestic Reverse Charge?

Since 1 March 2021, the Construction Industry Scheme domestic reverse charge has changed how VAT is handled between contractors and subcontractors in the UK building sector. Instead of the usual arrangement -- where a subcontractor charges VAT on their invoice and then pays that VAT to HMRC -- the contractor is now responsible for accounting for the VAT directly.

In practice, a subcontractor invoices for their work without adding VAT. The contractor receives the invoice, calculates what the VAT would have been, and accounts for it on their own VAT return -- as both input and output tax. This means the VAT effectively cancels out for the contractor, but HMRC still knows it was due and paid.

The scheme was introduced to tackle what HMRC called missing trader fraud, where subcontractors were collecting VAT from contractors and then disappearing before paying it to HMRC. By removing the subcontractor from the VAT payment chain, the fraud opportunity is eliminated.

Who Does It Apply To?

The reverse charge applies when all of the following conditions are met:

• The supply is of construction services or goods supplied alongside construction services
• Both the supplier (subcontractor) and the customer (contractor) are VAT-registered
• Both parties are registered under the Construction Industry Scheme
• The supply is not made to an end-user

Construction services for this purpose include most things you would expect: building, demolition, installation of heating and plumbing systems, electrical work, groundwork, roofing, painting and decorating, and similar activities.

Supplies that are outside the reverse charge include professional services such as architecture, surveying, and project management. These are not construction services under CIS, so they remain on normal VAT rules.

Key Exceptions You Must Know

Understanding the exceptions is just as important as understanding the rule itself.

End-users. If the customer is an end-user -- meaning they receive the construction service for their own occupation or use and do not make onwards supplies -- the reverse charge does not apply. A business buying construction work to use in its own premises is an end-user. They must tell their supplier in writing that they are an end-user.

Domestic properties. Work carried out for a private individual on their own home is outside the CIS entirely, so the reverse charge does not apply. Standard VAT rules apply, and reduced-rate VAT (5%) may be available for certain qualifying residential works.

Landlords. Landlords who receive construction services for their let properties are treated as end-users because they are not making an onward sale of construction services. They should inform their subcontractor in writing.

Intermediary suppliers. Some businesses sit between the main contractor and the final end-user. These are called "connected" or "intermediary" buyers and they can opt out of the reverse charge by notifying their supplier.

Mixed supplies. If a supply is partly construction services and partly something else -- say, construction and architectural consultancy -- you need to assess whether the construction element is dominant. If so, the whole supply is likely within the reverse charge.

How the VAT Flow Changes

Under normal VAT rules, a subcontractor doing £10,000 of work would invoice £10,000 plus £2,000 VAT, receive £12,000, and then pay the £2,000 to HMRC on their next return. The contractor reclaims the £2,000 on their own return.

Under the reverse charge:

• The subcontractor invoices £10,000 net, with a note that the reverse charge applies and VAT is £2,000 but is not charged
• The contractor pays the subcontractor £10,000 only
• The contractor enters £2,000 as output VAT on their VAT return, then also reclaims £2,000 as input VAT -- the net effect on the contractor is zero
• The subcontractor receives £10,000 and has no VAT to pay to HMRC

Invoicing Requirements

A subcontractor using the reverse charge must issue an invoice that includes:

• All usual VAT invoice information (name, address, VAT number, date, description)
• The net value of the supply
• The applicable VAT rate (usually 20% standard rate or 5% reduced rate)
• A clear statement that the domestic reverse charge applies, such as: "Domestic reverse charge: VAT Act 1994 Section 55A applies. Customer to account for VAT of £X to HMRC."

You must NOT show a VAT amount charged -- only the amount that the customer must account for. Some accounting software packages will generate this automatically once set up correctly. If you use spreadsheet invoicing, you will need to update your template.

Cashflow Implications

For subcontractors, the reverse charge can actually help cashflow. Under the old system, a subcontractor might collect £20,000 in VAT from contractors during a quarter, sit on that money, and then pay it to HMRC. That money was always HMRC's -- but it temporarily sat in the business.

Under the reverse charge, that situation does not arise. Subcontractors no longer collect output VAT on construction services. However, they still pay VAT on their own purchases -- materials, plant hire, tools. This means many subcontractors will regularly be in a VAT repayment position and may want to apply for monthly VAT returns to speed up refunds.

Contractors, meanwhile, will see no net cashflow impact from the VAT itself because the input and output VAT cancel out on their return.

Practical Steps to Get Right

If you are a subcontractor in construction, check whether your customers are VAT-registered and CIS-registered. If they are, you almost certainly need to use the reverse charge. Set up your accounting software to handle it, update your invoice template, and make sure your customers know what to expect.

If you are a contractor, ensure your subcontractors are applying the reverse charge correctly. If a subcontractor sends you an invoice with VAT charged on a supply that should be reverse charged, you should contact them to correct the invoice before paying. Paying the wrong VAT does not absolve you from accounting for it correctly.

VAT Registration and the Reverse Charge

If you are a subcontractor approaching the VAT registration threshold (£90,000 of taxable turnover in a rolling 12 months as of 2026), consider how the reverse charge will affect you once you register. Once you are VAT-registered and CIS-registered, the reverse charge will apply to most of your construction invoices automatically.

One common misconception is that subcontractors just below the threshold can ignore the reverse charge entirely. That is true in the sense that you cannot apply the reverse charge unless you are VAT-registered. However, you should be tracking your turnover carefully because once you cross the threshold, the reverse charge kicks in immediately for eligible supplies.

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