The default runs the other way round
Most people treat charging VAT as normal and the reverse charge as the odd case that has to be justified. Inside CIS it is the opposite. If the work is a construction service reported under CIS, and both of you are VAT registered, and it is standard or reduced rated, then the reverse charge applies. Something has to take it out, rather than something having to bring it in.
That matters because of what the exemptions actually require. The big one is the end user exemption, and it is not triggered by your customer being an end user. It is triggered by your customer telling you in writing that they are one.
No notification, no exemption. You can be fairly confident the developer you are invoicing is the end user of the building, and until they say so in writing you still reverse charge them. It is usually why one of these invoices arrives unexpectedly, and the answer to "you shouldn't have reverse charged me" is normally "then send me the notification".
There is no magic sentence
A surprising amount of anxiety goes into getting the exact words right, on the belief that one specific form is required and anything else is invalid. It is not. The VAT Regulations require the invoice to carry the reference reverse charge and to make clear that the customer must account for the VAT, and HMRC states plainly that the precise wording is not prescribed.
All of these do the job:
- Reverse charge: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC.
- Reverse charge: customer to pay the VAT to HMRC.
- Reverse charge: S55A VATA 94 applies. Customer to account for the VAT to HMRC.
Pick whichever sits best on your invoice. What matters is that the two words are there and the obligation is clear.
Show the VAT. Do not charge it.
Both directions get this wrong. HMRC's position is that the amount to be accounted for under the reverse charge should be clearly stated on the invoice, but should not be included in the amount shown as total VAT charged.
So a £10,000 supply at the standard rate shows £2,000 of VAT for the customer to account for, a VAT charged figure of nil, and a total payable of £10,000. Charge the £2,000 and you have collected VAT you were not entitled to. Leave the figure off entirely and your customer has to derive it themselves, which is not what the invoice is for.
It is not CIS, and it does not behave like CIS
The two arrived together, they cover much the same work, and they are constantly assumed to operate the same way. They do not.
CIS is deducted from the labour element, after materials and the other exclusions come off. The reverse charge applies to the whole supply, materials included. A single invoice can quite easily have a CIS deduction worked out on part of it and a reverse charge applied to all of it, and both are right.
What takes a supply out
Beyond the end user notification: the work not being within CIS, either party not being VAT registered, a zero-rated supply, supplying workers rather than a construction service, and a handful of services HMRC lists as excluded when supplied on their own. Architects and surveyors, security systems, blinds and shutters, signwriting.
That last group has a sting in it. Excluded when supplied on their own. Supplied as part of a larger job that is reverse charged, the whole supply follows the charge rather than being split into two treatments on one invoice.
Common questions
When does the VAT domestic reverse charge apply?
To construction services reported under CIS, between two UK VAT-registered businesses, at the standard or reduced rate. If all of that is true it applies by default. Something has to take it out, rather than something having to bring it in.
What wording must a reverse charge invoice use?
There is no prescribed wording, which surprises people who have been told there is one magic sentence. The VAT Regulations require the invoice to carry the reference "reverse charge" and to make clear the customer must account for the VAT. HMRC says the precise wording is not set in law, so "Reverse charge: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC" works, and so do several shorter forms.
Do I show the VAT on a reverse charge invoice?
Yes, but you do not charge it. HMRC says the amount to be accounted for should be clearly stated on the invoice but not included in the total VAT charged. So a £10,000 supply shows £2,000 of VAT for the customer to account for, and the customer pays £10,000.
What is an end user, and how do I know if my customer is one?
Someone who does not make onward supplies of construction services, typically the building owner. You know because they tell you in writing, and nothing else counts: without a written notification the reverse charge applies whatever you suspect, and with one you issue a normal VAT invoice and keep the notification as the evidence.
My customer says I should not have reverse charged them. Who is right?
If they never sent you an end user notification, you were. The exemption is triggered by their notification, not by their status in the abstract. The fix is for them to send one, and it applies to invoices from then on rather than retrospectively tidying the ones already issued.
Does the reverse charge apply to materials as well as labour?
Yes. Unlike CIS, which is deducted from the labour element after materials come off, the reverse charge applies to the whole supply. The two schemes arrived together and are often assumed to work the same way. They do not.