Published: July 2026 | Fact-Checked & Audited By: David Vance, CTA FCA (Chartered Tax Advisor & Accountant)
This guide is fully updated for the 2026/27 HMRC tax year. All calculations and tax rules have been audited against official UK legislation.
For businesses operating in B2B sectors, particularly in the UK construction industry, managing VAT invoices is subject to strict regulatory oversight. In recent years, HMRC has introduced the **Domestic VAT Reverse Charge** to combat missing trader fraud. This mechanism shifts the responsibility for reporting VAT from the supplier to the customer. In this comprehensive guide, we review the reverse charge rules for 2026/27, explain how it integrates with the Construction Industry Scheme (CIS), provide invoicing templates, and list the key exemptions.
What is the Domestic VAT Reverse Charge?
Under standard VAT rules, when Company A sells services to Company B, Company A charges 20% VAT, collects the cash, and pays it to HMRC. Under the Reverse Charge, Company A invoices Company B without charging VAT. Instead, Company B calculates the VAT due on the purchase, reports it on their own VAT return as “output tax” (as if they were the seller), and reclaims it as “input tax” on the same return. This process eliminates the cash transfer of VAT, preventing fraudulent suppliers from collecting the tax and disappearing.
The Construction Industry (CIS) Reverse Charge Rules
The most common application of the reverse charge is the UK construction sector. The reverse charge applies to B2B services that meet **all** of the following conditions:
- The services are reported under the **Construction Industry Scheme (CIS)**.
- The transaction is between VAT-registered businesses in the UK.
- The services are charged at the standard (20%) or reduced (5%) VAT rate.
- The customer has not confirmed that they are an **”end user”** or “intermediary supplier.”
If you are a subcontractor invoicing a main contractor, you must use the reverse charge. If you are invoicing the final property owner (the end user), standard VAT applies. Subcontractors should also calculate their CIS withholding taxes using our CIS Tax Calculator and assess overall company costs using our Fully Loaded Cost Calculator.
How to Write a Reverse Charge Invoice
If you supply services subject to the reverse charge, you must not include VAT in the final total of your invoice. However, your invoice must clearly display the following information:
- A note stating that the VAT reverse charge applies and that the customer must account for the VAT to HMRC.
- The rate of VAT that applies to the services (usually 20%).
- The total amount of VAT that the customer must report (illustrated for clarity, but excluded from the invoice total).
Example Invoicing Text:
“Reverse charge: VAT due at 20% to be accounted for by the customer to HMRC (VAT due: £400.00 on a net invoice of £2,000.00).”
Exemptions: End Users and Intermediaries
The reverse charge does not apply if the customer is an **end user**—defined as a business or individual who consumes the construction services rather than selling them on as part of a construction service package. This includes property developers building homes for sale or retailers refurbishing their own shops. The customer must confirm their end-user status in writing to the supplier, otherwise the reverse charge must be applied.
Frequently Asked Questions: Reverse Charge
Q: What is the Domestic VAT Reverse Charge in construction?
A: It is a tax mechanism where the customer accounts for the VAT on construction services directly to HMRC, rather than paying it to the supplier. This applies to transactions between UK VAT-registered companies reporting under the CIS.
Q: Who is considered an “end user” under the reverse charge rules?
A: An end user is a business or individual who receives construction services but does not sell them on as part of their own construction services. For example, a supermarket chain having a new store built is an end user, so standard VAT applies.
Q: Do I include the VAT amount in my invoice total under the reverse charge?
A: No. You must exclude the VAT from the invoice total, but you must include a note explaining that the reverse charge applies and state the rate and amount of VAT that the customer must account for.