What the reverse charge changes
The supplier does not charge VAT on the invoice. The customer records the VAT on its own VAT return and reclaims it in the usual way. The invoice still says how much VAT is due under the reverse charge.
On an invoice of £5,000 at 20%, the VAT due under the reverse charge is £1,000. The supplier shows it on the invoice but does not charge it, and the customer accounts for it.
The invoice wording
GOV.UK gives this as an example: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC.
When it does not apply
Sales to a customer that is not VAT registered, zero-rated work, workers supplied by an employment business, and customers who have told you in writing that they are an end user or intermediary supplier. Services on their own such as architects', surveyors', signs, seating, blinds, shutters and security systems are outside it too.
Questions
Who pays the VAT under the reverse charge?
The customer. It records the VAT on its own VAT return and reclaims it in the usual way. The supplier's invoice shows the VAT due but does not charge it.
Does the reverse charge apply to materials?
Materials supplied with the work are part of one supply, so they are reverse charged with it. They should not be split out to avoid the reverse charge.
What is an end user?
A customer registered for VAT and CIS that does not sell the construction work on. It has to tell the supplier in writing, and the supplier then charges VAT in the normal way.
- When does the domestic reverse charge apply in construction?
- Is my customer an end user for the reverse charge?
- Does the reverse charge apply to materials?
- What is the 5% rule for the reverse charge?
- What must a reverse charge invoice say?
- How do I account for the reverse charge when I buy subcontract work?