The CIS domestic reverse charge, explained for sole traders

VAT is usually simple: you add it to your price, the customer pays you, you pass it to HMRC. The reverse charge breaks that chain for construction work between businesses. Instead of you collecting the VAT, your customer accounts for it directly on their own return. You still show the VAT rate and amount on the invoice — you just do not get paid it.

The mechanism has different names in different countries — the Domestic Reverse Charge (DRC) for construction in the UK, the construction VAT reverse charge tied to RCT in Ireland, equivalents across the EU under the same Article 199 logic — but the principle is identical. In the UK it sits on top of the Construction Industry Scheme (CIS) and is set out in section 55A of the VAT Act 1994. This guide explains the shape of it; always confirm the current rule with HMRC or your accountant before you rely on it.

When the reverse charge applies

Five things generally have to be true at the same time:

1. The supply is a specified construction service under CIS — installation, repair, alteration, demolition and the materials supplied with them. Pure materials with no labour usually fall outside it.
2. Both you and your customer are VAT-registered.
3. Both of you are registered under CIS.
4. Your customer is not the end user — they are buying your work to sell it on as part of their own construction supply. A main contractor hiring you as a subcontractor is the classic case.
5. The supply is standard-rated (20%) or reduced-rated (5%) — not zero-rated work such as a new-build dwelling, which stays outside the reverse charge.

Flip any one of those and you are usually back to charging VAT the normal way. Work straight for a homeowner? Normal VAT. Customer not VAT-registered? Normal VAT. Supplying only materials? Normal VAT. The reverse charge is specifically for the business-to-business middle of the construction chain.

What goes on the invoice

A reverse-charge invoice looks like a normal VAT invoice with two differences. First, you still itemise the work and show the VAT rate and the amount that *would* apply — so your customer knows exactly how much to account for. Second, you do not add that VAT to the total they pay you, and you state clearly that the reverse charge applies and that the customer must account for the VAT.

HMRC accepts any wording that makes it unmistakable. Common versions are "Reverse charge: VAT Act 1994 Section 55A applies" or "Reverse charge: Customer to pay the VAT to HMRC." Vague is dangerous here. An inspector wants to see that both you and the customer understood who was responsible. A blank space where that line should be is the single most common reason these invoices get queried.

Show the VAT, name the rate, then say in plain words that the customer pays it to HMRC — not you. That one sentence is the difference between a clean invoice and an enquiry.

The mistakes that cost money

Charging VAT you should not have

If you add VAT to a reverse-charge job and the customer pays it, they cannot reclaim it — it was never yours to charge. You end up issuing a credit note and reissuing the invoice, and you have annoyed the one customer who gives you steady work. Decide the treatment *before* you raise the invoice, not after.

Getting the end-user test wrong

The same customer can be an end user on one job and a reverse-charge customer on the next. A developer who hires you to fix their own office is an end user; the same developer hiring you for a flat they are building to sell is not. Judge it per job, and keep the customer’s written end-user statement on file when they give you one — that statement is your cover.

Materials-heavy jobs slipping the rate

Most construction work runs at the standard 20%, but some qualifies for the reduced 5% — certain renovations of dwellings empty for two years or more, for instance. The reduced rate covers the labour and the materials you supply with it. Flag the rate on the quote so a materials-heavy job does not quietly land on the wrong one, and check the current rules with your accountant.

How to keep it boring

Boring is the goal with VAT. The way you get there is to let the tool decide the treatment from the facts you already have — the customer’s VAT and CIS status, whether they are the end user, the rate on the work — instead of remembering a rule on a wet Friday afternoon. MarginTap stamps the reverse-charge wording automatically when the job qualifies, shows the VAT without collecting it, and keeps the quote, invoice and payment record together so a CIS return has something to stand on.

[ See how MarginTap handles construction VAT → ]

None of this is a substitute for advice from your own accountant or HMRC — rules change, thresholds move, and your situation may have a wrinkle this guide does not cover. But if you understand the test and never leave the reverse-charge line blank, you have avoided the two mistakes that catch most sole traders.

Next, see how to quote a job without underpricing yourself — because the cleanest VAT treatment in the world will not save a job you priced too low.