VAT reverse-charge checker
Eight questions. A straight answer on whether you charge the VAT or your customer does - and the invoice wording to go with it.
Answer the questions to get a verdict
Work through the questions on the left. Each answer decides whether the next one is relevant, and the verdict appears as soon as there is enough to be sure.
Invoice wording to copy: Reverse charge: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC.
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This checker follows section 55A of the VAT Act 1994, SI 2019/892 and HMRC's published guidance. It covers the ordinary cases well; it is general information rather than VAT advice, and mixed contracts, group structures and international supplies are worth putting in front of your accountant.
What the domestic reverse charge actually does
Since 1 March 2021, on most construction work sold from one VAT-registered business to another, the supplier stops collecting the VAT. The customer accounts for it on their own VAT return instead, and reclaims it on the same return, so no money changes hands for it. HMRC brought it in to stop missing trader fraud - businesses collecting VAT on construction work and disappearing before paying it over.
It does not change what anything costs, and it does not change your profit. What it changes is who hands the VAT to HMRC, and how much cash sits in a subcontractor's account between returns.
The six conditions, in plain terms
| Condition | What to check |
|---|---|
| Construction work | A CIS construction operation, and not one of the excluded services supplied on its own. |
| Rate of VAT | Standard rated at 20% or reduced rated at 5%. Zero-rated work is out. |
| You are VAT registered | If you are not, there is no VAT to move. |
| They are VAT registered | Check the number on the GOV.UK VAT checker and keep the confirmation. |
| They are CIS registered | The payment has to be reported under CIS. |
| Not an end user | No written end user or intermediary supplier declaration on file. |
The services it does not cover
These are excluded by SI 2019/892 article 6 when they are the whole of what you are supplying. Supply any of them as part of a larger construction contract and they follow the rest of the job.
- Drilling for or extracting oil or natural gas.
- Extracting minerals, and the tunnelling, boring or underground works for it.
- Manufacturing building or engineering components, materials, plant or machinery, and delivering any of them to site.
- Professional work by architects, surveyors and building, engineering, interior or exterior decoration and landscape consultants.
- Making, installing and repairing wholly artistic work such as sculptures and murals.
- Signwriting, and erecting, installing or repairing signboards and advertisements.
- Installing seating, blinds and shutters.
- Installing security systems, including burglar alarms, CCTV and public address systems.
What changes on your invoice
You invoice the net amount. You still show the VAT rate or the VAT amount your customer has to account for - you just do not add it to what they pay you. And you have to say the reverse charge applies. Any of these are acceptable to HMRC:
- Reverse charge: VAT Act 1994 Section 55A applies
- Reverse charge: S55A VATA 94 applies
- Reverse charge: Customer to pay the VAT to HMRC
What changes on your VAT return
| Supplier | Customer | |
|---|---|---|
| Box 1 - output tax | Nothing | The VAT on the purchase |
| Box 4 - input tax | Nothing | The same VAT reclaimed, subject to the normal rules |
| Box 6 - net sales | The net value of the sale | Nothing |
| Box 7 - net purchases | Nothing | The net value of the purchase |
The cash flow hit nobody warns you about
A subcontractor turning over £200,000 a year used to hold roughly £40,000 of VAT across the year before paying it over. Under the reverse charge that money never arrives. Profit is identical; working capital is not. Two things help: switch to monthly VAT returns if you are regularly in a repayment position, and get your invoices out the day the work finishes rather than at the end of the month.
Two schemes also stop working the way they did. Reverse charge supplies cannot go through the Cash Accounting Scheme, and if you are on the Flat Rate Scheme you must exclude them from your flat rate turnover - for many subcontractors that makes the flat rate scheme not worth staying on at all.
Reverse charge questions, answered
When does the VAT domestic reverse charge apply?
When all of these are true: the work is a CIS construction operation and is not one of the excluded services; it is standard-rated or reduced-rated; both you and your customer are VAT registered in the UK; your customer is registered for CIS; the payment is reported under CIS; and your customer has not told you in writing that they are an end user or an intermediary supplier. Miss any one of them and you charge VAT as normal.
What is an end user?
A business that is VAT and CIS registered but does not make an onward supply of the construction services it buys - typically a property owner, a landlord, or a developer building for their own sale or letting. End users have to notify their supplier in writing. Until they do, the reverse charge applies.
What is an intermediary supplier?
A VAT and CIS registered business that is connected or linked to an end user - a landlord and tenant, or two companies in the same group - and that buys construction services and passes them on without materially altering them. An intermediary supplier is treated in the same way as an end user, and has to notify in writing in the same way.
Does the reverse charge apply to work for homeowners?
No. A private householder is not VAT registered and is not a CIS contractor, so domestic work is always invoiced with VAT in the normal way. Note that a contractor is not automatically an end user just because their own customer is not VAT registered.
What wording goes on a reverse charge invoice?
The invoice has to show the VAT rate or the VAT amount the customer must account for, without adding it to the total, and say that the reverse charge applies. HMRC accept wording such as "Reverse charge: VAT Act 1994 Section 55A applies", "Reverse charge: S55A VATA 94 applies" or "Reverse charge: Customer to pay the VAT to HMRC".
What is the 5% disregard?
Where the reverse charge element is 5% or less of the value of the whole contract, the parties can agree to ignore it and apply normal VAT rules to everything. It has to be agreed from the start of the contract and judged on overall contract values, not invoice by invoice. It is optional - you can choose to reverse charge the whole supply instead.
How does the reverse charge affect cash flow?
If you are a subcontractor you stop collecting VAT you used to hold until your next return, so the cash in your account falls even though nothing about your profit changes. Many subcontractors move to monthly VAT returns to get repayments back faster. You also cannot use the Cash Accounting Scheme for reverse charge supplies, and Flat Rate Scheme users have to leave them out of their flat rate turnover.
Get the reverse charge right on every invoice
Pipeline puts the right VAT treatment and the right wording on the invoice, so you are not deciding it line by line at nine on a Sunday.