Construction Services VAT Reverse Charge for Contractors

VAT reverse charge for construction services for contractors

I’m a contractor. What does the VAT reverse charge for construction services mean for my business?

Receiving an invoice from your supplier

  •  For supplies that fall within the VAT domestic reverse charge rules you should receive an invoice from any VAT registered subcontractor with no VAT, but with a statement that reverse charge rules apply.
  • It is your responsibility to ensure the invoice you receive has correctly applied the reverse charge rules. If in doubt you should query an invoice with your subcontractor.


  • When it comes to your VAT return, enter in box 1 of the VAT return the output tax on purchases to which the domestic reverse charge applies. But do not enter the value of such purchases in Box 6.
  • You may reclaim the input tax on your domestic reverse charge purchases in Box 4 of the VAT return and include the value of the purchases in Box 7, in the normal way.
  • There should be no net impact on your overall VAT bill.


A subcontractor provides a reverse charge invoice for £1,000.  The VAT that they would previously have charged would have been £200. The VAT return for this one transaction only would look like this:

VAT due on sales1200
VAT due on EC acquisitions2
Total VAT due3200
VAT reclaimable on purchases4200
Net VAT payable50
Value of sales6
Value of purchases71,000
  • You need to ensure you account for these correctly in your accounting software and this may require an update to your accounting software if you do not use cloud software.

Our bookkeeping spreadsheet will not do this for you and we recommend that purchase bookkeeping software, such as

  • Xero
  • QuickBooks online
  • Free Agent (free if you have a NatWest bank account)
  • Sage 50 Cloud Accounts and Sage Business Cloud Accounting


You may gain a cash flow benefit because the VAT you previously had to pay when paying subcontractors, but could not reclaim until your next VAT return, is simply netted off in your VAT return. There should be no net impact on your overall VAT bill.

However, to ensure you don’t pay too much or too little VAT, make sure the invoice you receive is correct, especially with regard to the correct VAT rates, and ensure the services listed are eligible for the reverse charge.

Raising your sales invoice

If you are invoicing an end user or a customer not VAT registered and not within CIS, then you will charge VAT as normal.

If you are in the middle of the chain and your sales invoice falls within the VAT domestic reverse charge rules, then please read our guidance on subcontractors.

For full guidance please click here.

Picture of Tom McManners BSc ACA ACMI
Tom McManners BSc ACA ACMI
Tom McManners is a Chartered Accountant and Senior Statutory Auditor. He is also the Director at Treetops. Visit the Treetops website for more information.
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Treetops is an established Chartered Accounting firm based in Farnborough, Hampshire. We have clients locally and nationally. For advice and a free consultation please contact us.

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