UK VAT Reverse Charge Calculator
This professional tool is designed for construction businesses operating under the Construction Industry Scheme (CIS). It calculates domestic reverse charge VAT, ensuring compliance with HMRC regulations. Whether you are a contractor or subcontractor, this tool helps you determine if the reverse charge applies, removes the VAT from the supplier's invoice, and calculates the amount the customer must account for to HMRC.
Calculation Result
Understanding the UK Domestic VAT Reverse Charge for Construction
The UK's domestic reverse charge for construction services changed how VAT is handled for most building and construction services. Introduced by HMRC to combat "missing trader" fraud, this measure ensures that VAT is paid directly to HMRC by the customer rather than the supplier. If you are a business registered for VAT in the UK and you supply or receive construction services that are reported under the Construction Industry Scheme (CIS), you must understand these rules to avoid heavy penalties.
How the Reverse Charge Works
In a standard VAT transaction, the supplier charges VAT to the customer, collects it, and pays it to HMRC. Under the VAT Reverse Charge, the supplier issues an invoice showing the net amount but does not charge VAT. Instead, the customer "self-accounts" for the VAT. This means the customer records the VAT as both an input and output tax on their own VAT return. For the supplier, this simplifies cash flow management but requires precise invoicing wording.
Who Does it Apply To?
The reverse charge applies if all the following conditions are met:
- The services are within the scope of the CIS.
- The supply is standard-rated or reduced-rated (it does not apply to zero-rated supplies).
- Both the supplier and the customer are VAT registered in the UK.
- The customer is not an "End User" or "Intermediary Supplier" who has provided written confirmation of their status.
How to Use This Calculator
Using our UK VAT Reverse Charge Calculator is simple. First, enter the net amount of your construction invoice. Select the appropriate VAT rate (usually 20% for standard work). The calculator will automatically determine the VAT amount that needs to be reverse charged. It will also provide you with the exact wording needed for your HMRC-compliant invoice, such as "Reverse Charge: Customer to pay the VAT to HMRC."
VAT Box Reporting for Construction
For Suppliers, you must not include the VAT in Box 1. Instead, you only record the total value of the sale in Box 6. For Customers, you must enter the VAT amount in Box 1 (VAT on sales) and Box 4 (VAT on purchases), ensuring the net effect is neutral unless you have restricted VAT recovery. The value of the purchase goes into Box 7.
Important Tips for Compliance
Always verify the VAT registration number of your sub-contractors or contractors using the HMRC online checker. Keep records of any "End User" status certificates provided by your clients. If a client is an end user (meaning they don't sell the construction services onward), the reverse charge does **not** apply, and standard VAT rules remain in effect.
Common Pitfalls
One common mistake is applying the reverse charge to zero-rated work, such as new build housing. Zero-rated services are exempt from the reverse charge. Another error is failing to update invoice templates; HMRC requires a specific note on the invoice stating that the reverse charge applies and showing the amount of VAT to be accounted for by the customer.