Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Reverse charge definition

What does Reverse charge mean? A VAT accounting mechanism in which the customer, not the supplier, accounts for VAT on a supply. In practice, the supplier issues an invoice without charging VAT and states that the reverse charge applies; the customer self-accounts for output tax and, if entitled, claims the corresponding input tax. This is broadly cash‑flow neutral for fully taxable businesses but affects partially exempt or unregistered customers and carries compliance and invoicing risks. The reverse charge is provided for in legislation (UK: Value Added Tax Act 1994 and secondary legislation; Ireland: VAT Consolidation Act 2010 and related regulations) and is applied by HMRC and...

UK construction VAT domestic reverse charge: scope, exclusions, end-user and intermediary supplier rules, CIS interaction, contract drafting, and accounting for suppliers and customers

Published by a LexisNexis Tax expert

Practice notes

This Practice Note concerns the VAT domestic reverse charge (DRC) for building and construction services, which took effect on 1 March 2021.

Why does this matter?

The reverse charge brings substantial accounting and verification consequences for building contractors and comparable trades, and may affect their clients. It impacts cashflow, and there is a danger of VAT being applied in error, leaving businesses open to assessments and penalties if they attempt to reclaim it as input tax. Carefulness is essential, and the status will need confirming before monies are released. Many issues are best tackled at the outset, within construction contracts.

What is a reverse charge?

A reverse charge is a method by which the customer, rather than the supplier, accounts for any VAT due. As a result, customers settle only the net value with their suppliers, and suppliers should not add VAT to their charges. Although the general reverse charge for building activity was introduced only in 2021, similar arrangements already existed for dealings in specific items, such as mobile phones and computer chips, and for certain goods and services, including building work, received from outside the UK (see Practice Note: VAT—the reverse charge on cross-border supplies). The newer measure...

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Martin Scammell

Martin Scammell is an independent VAT consultant, specialising in property and construction matters, who works with tax departments in major corporates and universities, and with a number of law and accountancy firms. He is the author of the leading reference work on VAT and property.Martin started out in VAT Policy in Customs & Excise, was a Partner at Ernst & Young, where he headed up the VAT real estate group, and then became head of indirect tax at Eversheds.He has been involved in the development of VAT legislation and policy over many years, and regularly serves on working parties established by HMRC. He was a member of the Office of Tax Simplification’s consultative committee for their review of VAT in 2017, and in 2018-19 of HMRC’s external stakeholder group considering the proposed reverse charge for building work. Martin currently works with HMRC as...

Web page updated on 22/05/2026

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