The VAT domestic reverse charge for construction: who it applies to

What the reverse charge is

Normally the builder charges VAT and pays it to HMRC. Under the domestic reverse charge, the customer accounts for the VAT instead. The invoice still shows the VAT rate, but notes that the reverse charge applies.

Who it applies to

HMRC's guidance says the reverse charge must be used for most supplies of building and construction services charged at the standard or reduced rate, for businesses registered for VAT in the UK where the payments are reported within the Construction Industry Scheme.

Homeowners are not affected

Homeowners are not in the Construction Industry Scheme, so the reverse charge does not apply to work on your own home: the builder charges VAT in the normal way.

Services it covers

• Constructing, altering, repairing, extending, demolishing or dismantling buildings and structures.
• Installing heating, lighting, air conditioning, ventilation, power, drainage, sanitation, water supply or fire protection systems.
• Painting and decorating inside or outside a building.
• Work that is part of preparing or completing those services — site clearance, earth-moving, excavation, foundations, scaffolding, site restoration and landscaping.

Services it does not cover (when supplied on their own)

• The professional work of architects, surveyors and consultants.
• Manufacturing or delivering building materials, components, plant or machinery.
• Installing security systems, burglar alarms and CCTV; signwriting and signboards; seating, blinds and shutters; artworks.

If you are a business customer

Make sure your accounting system can handle reverse-charge invoices and check the effect on cash flow. If you are the final user of the building work rather than someone who sells it on, read HMRC's guidance on end users before work starts, and tell your builder in writing if it applies.