The VAT Reverse Charge

The VAT Reverse Charge – Still Causing Confusion? You’re Not Alone

Let’s be honest – if you’re still scratching your head over the VAT reverse charge, you're in good company. Since it came in for construction services back in 2021, it’s caused more confusion than a spirit level in a sandpit.

So let’s clear it up – in plain English – so you can stop worrying and get back to the job.

What Is the VAT Reverse Charge?

Here’s how it works: if you’re a VAT-registered subcontractor working for a VAT-registered contractor and the job falls under CIS, then you no longer add VAT to your invoice.

Instead, you don’t charge VAT – the contractor pays the VAT directly to HMRC on your behalf. Sounds simple, right? Except when it’s not.

Who Does It Affect?

If you’re a subcontractor, it means:

• You don’t charge VAT on most invoices to contractors.

• You must state on the invoice that the reverse charge applies.

• You still need to account for the sale on your VAT return.

If you’re a contractor, it means:

• You have to account for the VAT yourself, through your own VAT return.

• You can still reclaim the VAT, so in theory, it’s neutral – but it affects your cash flow.

Common Headaches We See

❌ “I charged VAT by mistake – now what?”

Don’t panic. You’ll need to issue a credit note and re-issue the invoice without VAT. But the longer you leave it, the more of a mess it becomes with your VAT returns.

❌ “I don’t know if the job counts under CIS or not.”

That’s a big one. Jobs like plumbing, bricklaying, plastering etc. normally do fall under CIS. But if you're doing a supply-and-fit job for a homeowner, or just selling materials, the reverse charge doesn’t apply.

❌ “I’m doing both labour and materials – what now?”

The reverse charge still applies. It’s all about the labour element – if there’s labour involved and it’s within CIS, you’re in reverse charge territory.

Top Tips to Stay on the Right Side of HMRC

✅ Check your client’s VAT and CIS status – don’t just assume.
✅ Make sure your invoices are clear – you MUST say “Reverse charge – customer to account for VAT to HMRC”.
✅ Use accounting software that knows how to handle reverse charge (Xero, QuickBooks etc. all do).
✅ Get advice if you’re unsure – better to ask than to explain yourself during an HMRC enquiry.

Final Thought

This rule was brought in to stop VAT fraud in the construction industry – but let’s face it, it’s caused honest trades more headaches than the cowboys ever had.

If you’re still unsure whether reverse charge applies to you – or you’ve been doing it wrong – give us a shout. We’ll help you sort it without judgement and without jargon.

After all, you wouldn’t let your client DIY their electrics, would you?