The VAT domestic reverse charge for construction (CIS)

What the reverse charge does

Normally a supplier charges VAT and pays it to HMRC. Under the domestic reverse charge for construction, the customer (the contractor receiving the service) accounts for the VAT on their own return. The sub-contractor invoices net, noting that the reverse charge applies, and never handles the VAT cash.

Why it exists

It targets "missing trader" fraud, where a business charged VAT, collected it, and vanished before paying HMRC. By moving the VAT accounting to the customer, the cash never sits with the party most likely to disappear. It applies to services reported under the Construction Industry Scheme (CIS) between VAT-registered businesses.

The hidden cash-flow effect

Before the change, a sub-contractor received VAT with each invoice and held it until the quarterly VAT return — an interest-free cash cushion. The reverse charge removes that cushion. Many firms felt a one-off drop in working capital when it came in, and new sub-contractors never get the cushion at all.

Getting invoicing right

Reverse-charge invoices must state that the reverse charge applies and show the VAT rate or amount the customer must account for — without adding it to the total. Getting the wording wrong causes disputes and delayed payment. Some sub-contractors move to monthly VAT returns to reclaim input VAT faster and stay in a refund position.

Bridging the working-capital gap

If the reverse charge tightened your cash, a working-capital facility restores the buffer and funds materials or wages between valuations.

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