Construction reverse charge invoice: wording and examples

Since 1 March 2021, many building and construction invoices between VAT-registered businesses don't charge VAT in the usual way. Under the construction domestic reverse charge, the customer pays the VAT straight to HMRC instead of paying it to you. Your invoice still has to show the VAT, and it has to say clearly that the reverse charge applies.

This guide covers when the reverse charge applies, what the invoice must show, HMRC's wording, a worked example, credit notes, and how it sits alongside a CIS deduction. The free invoice generator prints the wording and leaves the VAT out of the amount due.

When the reverse charge applies

Check all four conditions before you use it:

If any answer doesn't match, you charge VAT in the normal way. HMRC's technical guide lists which construction services are covered and which are excluded, so check it if your work is unusual.

End users and intermediaries

Broadly, an end user is a customer who isn't going to sell your construction services on — for example, a business having its own premises built. An intermediary supplier is connected to an end user and passes the services on to them. HMRC's technical guide has the exact definitions. Neither gets reverse charge invoices: you charge them VAT as normal.

Because you can't always tell from the outside, ask your customer to confirm in writing whether they are an end user or intermediary before you invoice, and keep that with your records. HMRC's technical guide explains how this confirmation is usually handled.

What a reverse charge invoice shows

A reverse charge invoice is a full VAT invoice with a few changes:

• All the normal VAT invoice details — number, tax point, your VAT number, customer details, description, VAT rate and net amount per line. See what a VAT invoice must include.
• A note that the reverse charge applies. HMRC's example wordings are:
  • "Reverse charge: Customer to pay the VAT to HMRC"
  • "Reverse charge: VAT Act 1994 Section 55A applies"
  • "Reverse charge: S55A VATA 94 applies"
• The VAT amount (or the rate) stated but not charged. The VAT is shown so the customer knows what to account for, but it is not added to the total you ask them to pay.
• Your customer's VAT number is worth adding, as it shows why the reverse charge applies.

Worked example

A VAT-registered electrician does second-fix work for a VAT- and CIS-registered main contractor, who is not the end user:

Under the totals the invoice reads: "Reverse charge: Customer to pay the VAT to HMRC". The contractor pays you £2,500 and accounts for the £500 VAT on their own VAT return.

In Invoice Native, choose the supply type Construction — domestic reverse charge (CIS). The VAT summary shows "VAT due under the reverse charge" for each rate, the amount due leaves the VAT out, and the HMRC wording prints near the totals. The editor also asks for the customer's VAT number and warns you if it's empty.

Combining the reverse charge with CIS

Most reverse charge invoices also carry a CIS deduction, because the customer is a CIS contractor. The deduction is worked out on the labour only, never on VAT. Taking the example above at the 20% CIS rate:

The £500 of materials and the £500 of reverse charge VAT are both outside the deduction. Our CIS invoice guide covers the deduction in more detail.

Credit notes under the reverse charge

If you credit part of a reverse charge invoice, the credit note uses the same reverse charge wording and shows the amount of the output tax adjustment. Like any credit note, it should show the original invoice's number and date. Invoice Native prints "Reverse charge: customer to account for the output tax adjustment to HMRC" on reverse charge credit notes.

Your VAT return

As the supplier, you put the net value in box 6 only. You don't include the VAT in box 1, because the customer accounts for it. Cash accounting can't be used for these supplies, so they are reported on the invoice basis even if you use cash accounting for everything else.

Common mistakes

• Using the reverse charge for a homeowner or other end user. They pay VAT as normal.
• Adding the VAT to the amount due. The customer pays you the net amount only.
• Leaving out the wording, so the customer doesn't know they must account for the VAT.
• Taking the CIS deduction from the VAT. It applies to labour only.
• Forgetting the wording on credit notes.

Checklist

• ✅ You and your customer are VAT and CIS registered; the customer isn't an end user or intermediary
• ✅ All normal VAT invoice details
• ✅ Reverse charge wording near the totals
• ✅ VAT amount shown but not added to the amount due
• ✅ CIS deduction on labour only, if it applies
• ✅ Same wording on any credit note