The VAT Domestic Reverse Charge, Explained for Trades

↑ Part of the Tax & VAT series · The UK Trade's VAT & CIS Guide

The Domestic Reverse Charge (DRC) flips who pays the VAT on most building work between VAT-registered businesses. Instead of you charging VAT and passing it to HMRC, your customer accounts for the VAT on their own return. It has applied since March 2021, it covers most work reported under CIS, and getting it wrong in either direction creates a real mess: charge VAT when you shouldn't and your customer can't reclaim it; miss it when it applies and you're the one holding the liability.

This is a detail page under our main VAT & CIS guide, which covers the normal VAT rules first.

Part 1When the reverse charge applies

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All of these have to be true at once:

• The work is a construction service covered by CIS (building, alteration, repair, civils, demolition, most M&E and decorating).
• Both you and your customer are VAT-registered, and the payment is reported under CIS.
• The work is charged at the standard 20% or reduced 5% rate (zero-rated work is out of scope).
• Your customer is not an end user or intermediary supplier who has told you so in writing.

In plain terms: subcontractor invoicing a contractor, both VAT-registered, on CIS work — reverse charge. The same job for a homeowner, or for a business that's the final consumer of the building, is normal VAT.

Part 2The end user exception

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An end user is a business at the top of the chain that won't sell the construction service on: a developer keeping the building, a retailer having its own shop refitted, a landlord repairing its own property. End users (and connected "intermediary suppliers") are charged VAT the normal way, but only if they confirm their end-user status in writing. No written confirmation, and the default is the reverse charge. Keep that confirmation with the job's paperwork — it's what protects the VAT treatment you applied.

Part 3What your invoice has to say

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A reverse charge invoice still shows everything a normal VAT invoice shows, with two changes:

• A clear note that the reverse charge applies, for example: "Reverse charge: customer to account for VAT to HMRC."
• The rate of VAT that applies, and the amount the customer must account for — shown for information, not added to the total the customer pays you.

The total you're paid is the net figure. The VAT never touches your bank account, which brings us to the catch.

Part 4The cash-flow catch

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Under normal VAT, the 20% you collect sits in your account until the quarterly return, and plenty of trades quietly use it as working capital. Under the reverse charge that buffer disappears: you're paid net, every time. For a subcontractor doing mostly DRC work it goes further — you charge no output VAT but still reclaim VAT on materials, vans and tools, so you're likely due money back most quarters. If that's you, consider monthly VAT returns, which turn the refund into a monthly repayment instead of leaving your money with HMRC for three months at a time.

Part 5Common mistakes

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• Charging VAT on a job the reverse charge covers. The customer can't reclaim VAT that was never due, so they'll bounce the invoice back — after the delay has already cost you.
• Applying the reverse charge to a homeowner job. Domestic customers are never in scope; consumers pay VAT the normal way.
• Missing the written end-user confirmation and treating the job as normal VAT because the customer "said so" on the phone.
• Forgetting the invoice wording. A net invoice with no reverse-charge note and no VAT rate shown isn't a valid reverse charge invoice.

Common questionsDomestic Reverse Charge FAQ

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Do I charge VAT to a contractor if we're both VAT-registered?

On CIS construction work at 20% or 5%, generally no — the reverse charge applies and the contractor accounts for the VAT. You invoice net, state that the reverse charge applies, and show the VAT rate and amount for information.

Does the reverse charge apply to homeowners?

No, never. Domestic customers and any non-VAT-registered customer are charged VAT the normal way.

What if my customer says they're an end user?

Get it in writing before you invoice. With written confirmation you charge VAT normally; without it, apply the reverse charge. A line in an email is enough — keep it.

Does the reverse charge count towards the VAT registration threshold?

Your own sales still count towards your £90,000 taxable turnover even when the reverse charge means you don't collect the VAT. Reverse charge purchases, though, don't push a customer over the threshold.

I'm nearly always in repayment now. Is that normal?

For a subcontractor doing mostly reverse charge work, yes — you reclaim input VAT but collect none. Ask HMRC to move you to monthly returns so refunds come back monthly.

This guide is general information for UK tradespeople, current to the best of our knowledge in 2026. Rules, rates and thresholds change, and how they apply depends on your specific circumstances. It is not tax, accounting or legal advice. Always confirm your position with HMRC, a qualified accountant or a solicitor before relying on it. TradeDraft accepts no liability for decisions made on the basis of this guide. Questions: hello@tradedraft.co.uk.

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