VAT Reverse Charge Examples: Construction Invoices Worked Through

If you learn better from numbers than from HMRC guidance, this is the page for you. Below are five worked examples of the VAT reverse charge on real-looking construction invoices: a subbie billing a main contractor, a main contractor billing an end user, a supply and fit job, a new build house and a subbie who isn't VAT registered. Each VAT reverse charge example shows what goes on the invoice, what cash changes hands and where it lands on each side's VAT return.

All figures are made up, rounded, and use the 20% standard rate. Where CIS is deducted, we've assumed the subbie is registered for CIS at the standard 20% rate. If you want the background on why the rules exist before you look at the sums, start with our explainer on how the reverse charge works →

VAT reverse charge example 1: plasterer to main contractor

This is the bread and butter case, and the one the rules were written for. A VAT-registered plastering firm does a month's work on a block of flats for a VAT-registered main contractor. The main contractor will bill the housing association client for the whole job, so it's making an onward supply. It hasn't given the plasterer an end-user notice (it couldn't, it isn't one). The plasterer's application is £5,000: £4,000 labour and £1,000 of board and skim.

Two things worth pointing out. The £1,000 of VAT appears on the invoice so the main contractor knows what to declare, but it's not in the total due. And the CIS deduction is on labour only. The main contractor's CIS return will show £5,000 gross, £1,000 materials and £800 deducted.

Example 2: main contractor to an end user

Same main contractor, different invoice. It now bills the client for the stage. Say the client is a commercial developer, registered for VAT and CIS, building a unit it will own and let. The developer doesn't sell construction services on to anyone, so it's an end user, and it has written to the main contractor saying so.

This is the point people miss. The reverse charge runs through the middle of the chain and stops at the end user. Without that written notice from the developer, the main contractor would have had to apply the reverse charge, even if everyone knew full well the developer was the end of the line. Gross payment status is just an assumption in this example to keep the table simple; if you want to know whether it's worth having, see our guide to CIS gross payment status →

A homeowner is the simplest end of the chain of all. They aren't VAT registered, so a VAT-registered builder charges VAT normally and the reverse charge never comes into it.

Example 3: supply and fit windows

Here's where plenty of invoices go wrong. A VAT-registered window company supplies and fits windows on a refurbishment for a main contractor. The windows cost £8,000 and fitting is £2,000. The window firm's bookkeeper thinks the reverse charge only touches the labour, so she charges VAT on the frames and reverse charges the fitting. That's wrong.

HMRC treats goods supplied with a construction service as part of a single supply, and the reverse charge applies to the full value of the invoice. Splitting the order into separate invoices for materials and labour doesn't change it either. HMRC specifically says a single supply and fix order stays reverse charged in full even if the supplier issues separate invoices.

The only escape here is the 5% disregard, where the reverse charge part of a contract is 5% or less of the total and both sides agree that from the start. Fitting at 20% of the value is nowhere near it.

Example 4: groundworks on a new build house

A VAT-registered groundworker does £20,000 of foundations and drainage for a VAT-registered housebuilder on a new detached house. Construction of a new dwelling is normally zero rated. The reverse charge only applies to standard and reduced-rated supplies, so it doesn't apply here, whatever the housebuilder's status.

Two catches. First, zero rating has conditions of its own, and not every job on a housing site qualifies. Second, if that same groundworker also builds a standard-rated commercial car park for the same customer, that invoice is reverse charged. Same customer, same month, different answer.

Example 5: a subbie who isn't VAT registered

A sole trader bricklayer turning over well under the £90,000 VAT registration threshold invoices a main contractor £3,000 for a week's work. He isn't VAT registered, so he can't charge VAT and has no VAT to reverse. The domestic reverse charge VAT rules don't apply at all.

The main contractor's job here is to check. If an invoice shows "DRC VAT" but no VAT number, or a number that doesn't check out on HMRC's system, don't declare VAT on it until you know the supplier's real status. Declaring reverse charge VAT on a supplier who isn't registered overstates both boxes 1 and 4. It nets to nil, but your return is still wrong.

What the examples have in common

Look back over the five and a pattern falls out. Whichever VAT reverse charge example you pick, the same few questions decide it. The reverse charge applies in examples 1 and 3, where a VAT-registered business supplies standard-rated CIS work to another VAT-registered business that sells it on. It doesn't apply in examples 2, 4 and 5, where the customer is an end user who said so, the work is zero rated, or the supplier isn't registered. Every invoice question comes back to those same checks.

The cash row is the one to watch. In examples 1 and 3 the subbie receives less money than it used to, because no VAT comes in with the payment. If most of your work looks like example 1, check your VAT return position and your cash planning; our guide to setting aside for tax → is a good starting point.

Frequently asked questions

Does the reverse charge apply to materials on a supply and fit job?

Yes. Materials supplied with a construction service are part of a single supply, so the reverse charge applies to the full invoice value, not just the labour.

Should the VAT amount appear on a reverse charge invoice?

Yes, HMRC wants the VAT due under the reverse charge shown so the customer knows what to declare, but it must not be included in the total the customer pays.

Is CIS deducted from the VAT on a reverse charge invoice?

No. CIS is deducted from the labour element only, excluding VAT and materials, so the reverse charge doesn't change the deduction.

Does the reverse charge apply to zero-rated new build work?

No. It only applies to standard-rated and reduced-rated supplies, so zero-rated work on a qualifying new dwelling is outside it.

This article is general guidance for building contractors, not advice for your specific situation. Always review your own circumstances with your accountant before acting.

← Back to all articles