Since 1 March 2021, when a VAT-registered subcontractor supplies construction services to a VAT and CIS-registered contractor, the contractor pays the VAT to HMRC instead of the subcontractor. This plain-English guide explains when the domestic reverse charge applies, how to invoice it and how to put mistakes right. Based on HMRC's webinar "How to apply the VAT reverse charge for construction services" (September 2026), with links to the official guidance at the end.
If you and your customer are both VAT registered and the work is a CIS service, you must apply the reverse charge to every invoice. It makes no difference whether you are paid gross or net under CIS.
Is it within CIS, is it standard or reduced rated, is the customer VAT registered, are they CIS registered, and have they told you they are an end user? The answers decide whether the reverse charge or normal VAT applies.
Show the VAT rate or amount on each line, mark it as reverse charge, leave the VAT out of the total due and tell the customer to account for it to HMRC. Zero-rated work never takes the reverse charge.
Businesses that are CIS and VAT registered but make no onward supplies of construction services can ask for normal VAT, but only by confirming their end user status to you in writing.
Subcontractors stop collecting VAT from customers and may be owed money by HMRC instead, so monthly returns can help. Mistakes are fixed with a new invoice or a credit note.
Under normal VAT rules the contractor pays VAT to the subcontractor, who pays it to HMRC. Under the reverse charge the VAT skips the subcontractor: the contractor pays it straight to HMRC.
Work through HMRC's suppliers' flowchart in order. If the answer sends you to normal VAT rules, charge your customer VAT and account for it to HMRC as usual. Do not use this check for services supplied by employment businesses.
VAT collected from customers passes through your business. You pay HMRC the difference between the VAT you charge and the VAT on your costs.
Your customer accounts for the VAT on your sales, but you still pay VAT on your costs. You may become a repayment trader, with HMRC paying you.
Contact your customer straightaway to explain the error, issue them an invoice for the VAT due, and account for it to HMRC in the normal way.
Tell your customer straightaway that the reverse charge applies and that they must account for the VAT to HMRC, then issue a credit note or refund for any VAT they paid you.
Don't pay the VAT to the supplier: you can't recover VAT that wasn't properly payable. Ask for a credit note or amended invoice, tell them you'll account for the VAT under the reverse charge, and account for it to HMRC. If you've already paid it, ask for a credit note or refund, account for the VAT under the reverse charge and remember to reclaim it.
If errors leave you genuinely unable to pay the VAT due, HMRC will try to agree an affordable monthly payment plan based on your income, spending or financial position.
Yes, if all the conditions are met. Whether you are paid gross or net under CIS does not affect VAT.
Then the reverse charge does not apply, because both must be VAT registered. An unregistered subcontractor does not charge VAT at all. A registered subcontractor with an unregistered customer uses normal VAT rules.
Yes, if the conditions are met for each one. Each subcontractor should run the suppliers' check, and if you're unsure, ask them.
Working in construction and not sure whether the reverse charge applies to you? We can check your customers and invoices, set up the right VAT rates in Xero and help you decide on your VAT scheme and return frequency.
Talk to us about VATThis guide is general information based on HMRC's published guidance and webinar, and is not advice for your specific circumstances. Rules change, so check the official guidance or speak to us before acting.