Domestic reverse charge VAT can change who accounts for VAT on a construction invoice. It often causes confusion because the work may look like an ordinary VATable job, yet the supplier’s invoice and the customer’s VAT return are handled differently. Checking the position before invoicing is much easier than correcting it later.
How does domestic reverse charge VAT work?
Under the reverse charge, a supplier of certain building and construction services does not charge VAT in the usual way. Instead, the VAT-registered customer accounts for the VAT on its own return. The supplier still needs a compliant invoice that makes the reverse charge clear. This is a VAT accounting mechanism, not a discount on the work.
Domestic reverse charge VAT: checks before invoicing
Start with the type of work. Is it within the construction services covered by the rules? Then check whether the supply is within the scope of CIS and whether both supplier and customer are VAT registered in the UK. Consider who the customer is. For example, an end user or an intermediary supplier may give notice that changes the treatment. A private homeowner is not a VAT-registered construction business and the reverse charge does not apply in the same way.
These checks must be made for the actual contract and supply. A business name, trade description or past invoice is not enough on its own.
What happens if the invoice is wrong?
An incorrect invoice can lead to a VAT return error, payment dispute or delay while the parties reissue paperwork. Before sending the invoice, confirm the customer’s VAT number and status, the nature of the service and any end-user notification. Keep that evidence with the contract. Make sure accounting software is set to the correct VAT treatment rather than relying on a handwritten note.
For customers buying services, check that the invoice treatment matches the work and your status before processing it. Your team should understand why VAT may appear on your return even though it was not paid to the supplier.
Build a repeatable check
Use a short checklist for every new construction customer and update it when the contract changes. Review mixed supplies or unusual projects with an accountant before invoicing. HMRC’s construction reverse charge technical guide explains the detailed conditions and exceptions.
AA & R Certified Accountants can help you review invoices and set up consistent bookkeeping for construction VAT. Speak to our team if a contract’s treatment is unclear.
Related reading: VAT Registration: When It Makes Sense for Your Business.