Guide

VAT for UK trades, and the domestic reverse charge

Last reviewed 12 September 2026

VAT catches out growing trades in two places: the rolling threshold, which is not the tax year, and the reverse charge, which changes who pays the tax to HMRC without changing the rate.

This is general information, not tax advice. VAT in construction has more special cases than almost any other sector, and the cost of getting one wrong falls on you rather than on your customer. Where a job turns on the rate, take advice before you quote.

When you have to register

You must register for VAT once your VAT taxable turnover goes above 90,000 pounds. The trap is in the measurement: it is a rolling twelve months, not your accounting year. At the end of every month, add up the previous twelve. If that total is over the threshold you must register within 30 days of the end of that month, and you become liable from the first day of the month after that.

You also have to register if you expect to go over 90,000 pounds within the next 30 days alone, for example because you have just won a single large contract. In that case registration is immediate rather than delayed.

Registering before you have to

Voluntary registration can make sense if you are mostly working for VAT-registered businesses, because they reclaim the VAT you charge and you reclaim the VAT on your materials and van. It usually makes no sense if you work mainly for householders, because your prices effectively rise by 20 per cent to a customer who cannot reclaim anything, and you are then competing against unregistered trades on an uneven footing.

The rates that apply to building work

• Standard rate, 20 per cent, applies to most repair, maintenance, improvement and extension work on existing homes.
• Reduced rate, 5 per cent, can apply to certain residential conversions (for example a house into flats), renovations of dwellings empty for two years or more, and some energy-saving installations. Conditions are strict and evidence matters.
• Zero rate applies to qualifying new-build residential construction and to certain work for disabled people in their own home.

Two practical points. The reduced and zero rates apply to the qualifying work, so a job can carry more than one rate and needs to be invoiced accordingly. And you must keep the evidence that the conditions were met, because if HMRC disagrees years later the assessment comes to you, not to the customer.

The domestic reverse charge

Since 1 March 2021 the domestic reverse charge applies to most supplies of building and construction services between VAT-registered businesses in the Construction Industry Scheme. It does not change the rate of VAT. It changes who hands the money to HMRC.

Under it, the supplier does not charge VAT on the invoice. The customer accounts for the VAT itself, entering it as both output tax and input tax on its own return. The invoice must state that the reverse charge applies and show the rate or amount of VAT that the customer has to account for, without adding it to the total due.

When the reverse charge applies

All of these have to be true: the supply is of construction services within the scope of CIS, both parties are VAT registered, the supply is standard or reduced rated, and the customer is not an end user or an intermediary connected to one.

When it does not

• Work for a householder or any other customer who is not VAT registered. Charge VAT as normal.
• Work for an end user, meaning a customer who does not make onward construction supplies, such as a property owner having its own building worked on. The end user must tell you in writing that it is an end user, and it is worth asking for that statement rather than assuming.
• Zero-rated supplies, such as qualifying new build.
• Supplies of staff or workers only, rather than construction services.

What it does to your cash flow

This is the part that hurts subcontractors. Before the reverse charge, the VAT a subcontractor collected from a contractor sat in the business bank account until the quarterly return. Now it is never collected at all, so that cushion has gone while the VAT on your own materials is still reclaimable. If your work is mainly reverse charge, moving to monthly VAT returns brings the repayments back faster and can be worth doing.

Get the invoice wording right

A reverse charge invoice must make the position clear. A line such as "Reverse charge: VAT Act 1994 Section 55A applies. Customer to account to HMRC for the reverse charge output tax at 20 per cent, amount stated" satisfies the requirement. Charging VAT when the reverse charge applies means your customer cannot properly reclaim it, and you will be asked for it back.

More guides

• How to price a building job so it still makes money
• Quote or estimate: the difference that decides who pays for the overrun
• What a quote must include to be safe in the UK
• How to work out your true hourly rate
• Exclusions and assumptions: the two lists that protect your price
• CIS deductions explained, for subcontractors and contractors
• Payment terms, deposits and staged payments
• Variations and extras: how to get paid for work outside the quote
• Why quotes get rejected, and eight fixes that win more of them
• Domestic versus commercial: what changes in the way you quote
• Chasing late payment without losing the customer

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This guide is general information for UK trades, written by the BidReady team. It is not legal, tax or financial advice. Rules change and individual circumstances differ, so take professional advice before acting on anything that matters.