The construction VAT domestic reverse charge, explained

What the reverse charge does

Normally, a VAT-registered supplier charges VAT and pays it to HMRC. Under the domestic reverse charge, the supplier does not charge VAT. Instead, the customer accounts for it on their own VAT return. The rules for building and construction services apply to supplies with a tax point on or after 1 March 2021.

When it applies

HMRC says you must use the reverse charge if all of these are true:

• You are VAT registered in the UK and you supply building and construction services.
• Your customer is VAT registered in the UK.
• Payment for the supply is reported within the Construction Industry Scheme (CIS).
• The services are standard or reduced rated.
• You are not an employment business supplying staff or workers.
• Your customer has not told you in writing that they are an end user or intermediary supplier.

Before applying it, check your customer's VAT number and CIS registration.

When it does not apply

• Supplies to end users, such as a client building for its own use, and intermediary suppliers, where they confirm their status in writing.
• Zero-rated work.
• Supplies by employment businesses, including the supply of staff.
• Work outside CIS, and supplies to customers who are not VAT registered (normal VAT rules apply).

If the reverse charge element of a contract is 5% or less of its total value, it can be disregarded, but only if you and your customer agree this from the start of the contract, based on the overall contract value.

Does it affect freelance professionals?

It depends on what you supply and how you are paid. Many site and labour-type services fall within CIS. Some professional services, such as those of architects, surveyors and consultants, are often outside CIS and so outside the reverse charge. Check HMRC's CIS guidance and VAT Notice 708 for your services, or ask your accountant.

What to put on your invoice

Your invoice must contain everything a normal VAT invoice needs, make clear that the domestic reverse charge applies, and state the amount of VAT due under the reverse charge (or the VAT rate, if you cannot show the amount). Do not include the VAT in the amount you ask the customer to pay.

HMRC's examples of suitable wording include “Reverse charge: Customer to pay the VAT to HMRC” and references to section 55A of the VAT Act 1994.

In 3lanse, marking an invoice as reverse charge adds the wording and leaves VAT off the total. Whether the reverse charge applies is still your decision.