Reverse Charge Invoice Template (UK Construction): Wording and Example

Since 1 March 2021, most building and construction services supplied between VAT-registered businesses in the Construction Industry Scheme are under the VAT domestic reverse charge. You still work out the VAT, but you do not collect it: your customer pays it straight to HMRC. Your invoice has to make that clear, or your customer may pay you the VAT by mistake and you end up owing it.

This page shows when the reverse charge applies, the wording HMRC accepts on the invoice, and a full worked example with the CIS deduction, so you can see how the numbers fit together.

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Worked example

INVOICE INV-001Reverse charge + CIS 20%

Description	Type	Qty	Rate	VAT	Net
First fix electrics, Unit 4 (5 days)	Labour	5	£400.00	20% RC	£2,000.00
Cable, back boxes and consumer unit	Materials	1	£500.00	20% RC	£500.00

Total excluding VAT£2,500.00

VAT at 20% (reverse charge, not added)£500.00

CIS deduction 20% on labour (£2,000.00)-£400.00

Amount due£2,100.00

Reverse charge: Customer to pay the VAT to HMRC. The customer accounts for the £500 of VAT on their own VAT return. The CIS deduction is worked out on labour only, before VAT.

When you must use the reverse charge

According to HMRC, you must use the domestic reverse charge when all of these are true:

you are VAT registered in the UK and supply building or construction services
your customer is also registered for VAT in the UK
the payment is reported within the Construction Industry Scheme
the services are standard-rated or reduced-rated
you are not an employment business supplying staff or workers
your customer has not told you in writing that they are an end user or an intermediary supplier

Before you apply it, check your customer’s VAT number and their CIS registration. HMRC’s online CIS service lets you check, and if a contractor does not show up, ask them to confirm that they report the payment under CIS.

When it does not apply

Work for a homeowner, or for any customer who is not VAT registered, is invoiced with VAT in the normal way. So is work for an end user, meaning a business that uses the building work itself rather than selling it on, as long as they have told you so in writing. HMRC also lists services that are outside the reverse charge when supplied on their own, including the professional work of architects and surveyors, installing security systems such as burglar alarms and CCTV, installing seating, blinds and shutters, and signwriting.

If you are not VAT registered at all, none of this applies to you: your invoice shows no VAT, and only the CIS deduction (if you work for a contractor) matters.

The wording HMRC accepts

The VAT regulations say an invoice for services under the reverse charge must include the reference “reverse charge”. HMRC gives these examples of wording that meet the legal requirement:

VAT Act 1994 Section 55A applies
S55A VATA 94 applies
Customer to pay the VAT to HMRC

Putting the words “Reverse charge:” in front, as in “Reverse charge: Customer to pay the VAT to HMRC”, keeps both parts of the rule on one line.

The invoice must still show everything a normal VAT invoice shows, and it must state how much VAT is due under the reverse charge (or, if your software cannot show the amount, the VAT rate), without including that VAT in the amount you charge. If your software cannot show the amount, the invoice should say that the customer is to account to HMRC for the VAT, and the customer must be able to tell which lines are under the reverse charge.

How the numbers fit together with CIS

Most invoices under the reverse charge are also CIS invoices, so two separate things happen to the same total. In the example, the net amount is £2,500. VAT at 20% is £500, which is shown but not added, because the customer pays it to HMRC. The CIS deduction is 20% of the labour only (£2,000), which is £400, and it is never taken from VAT or materials. The customer therefore pays you £2,100.

If you would normally add the £500, you would have invoiced £3,000 and been paid £2,600. That is the most common mistake, and it leaves you holding VAT that should never have been charged.

Your VAT return and cash flow

HMRC’s technical guide is clear: as the supplier you must not enter any output tax for sales under the reverse charge, only the net value of the sale. Your customer adds the VAT to the output tax on their own return and can reclaim it as input tax under the normal rules. You also cannot use the VAT Cash Accounting Scheme for supplies under the reverse charge. Because you no longer collect VAT on these jobs, you may find you are regularly owed VAT back from HMRC. HMRC’s technical guide explains how moving to monthly VAT returns can help your cash flow.

Credit notes follow the same idea: they must say the reverse charge applies and show the reduction in VAT the customer has to account for.

How the Invoice Maker handles it

With Construction as your trade, your VAT number and your CIS rate in your profile, each invoice has two tick boxes: Deduct CIS and Reverse charge. Ticking Reverse charge shows the VAT on every line and in the totals without adding it, and prints “Reverse charge: Customer to pay the VAT to HMRC” on the invoice. The CIS deduction is worked out on labour only, before VAT, exactly as in the example.

Frequently asked questions

Does the reverse charge apply to work for homeowners?

No. The reverse charge only applies when the customer is VAT registered and reports the payment under CIS. Work for homeowners is invoiced with VAT in the normal way (if you are VAT registered).

What wording should I put on a reverse charge invoice?

HMRC accepts, for example, “Reverse charge: Customer to pay the VAT to HMRC”, or a reference to VAT Act 1994 Section 55A. The invoice must also show the VAT amount (or rate) without adding it to the total.

Is CIS deducted from the VAT?

No. The CIS deduction is worked out on the labour part of the invoice, excluding VAT and materials.

I am not VAT registered. Do I need the reverse charge?

No. The reverse charge only affects VAT-registered suppliers. Without VAT registration your invoice shows no VAT at all.

Do I need an account to use the template?

No. Start the invoice on the Invoice Maker page straight away. To download, email or keep it, create a free TaxEase UK account, which includes 5 invoices a month.