{"id":26376,"date":"2024-10-21T15:48:14","date_gmt":"2024-10-21T15:48:14","guid":{"rendered":"https:\/\/www.simplybusiness.co.uk\/?post_type=knowledge&#038;p=26376"},"modified":"2026-02-27T16:22:22","modified_gmt":"2026-02-27T16:22:22","slug":"reverse-charge-vat","status":"publish","type":"knowledge","link":"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/","title":{"rendered":"Reverse charge VAT \u2013 a simple guide for businesses"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">If you\u2019re a VAT-registered business that works in construction or with overseas suppliers, you\u2019ll need to know about reverse charge VAT.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A reverse charge means VAT is paid differently to usual, which could have an impact on your cash flow and accounting.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Read on to find out how a VAT reverse charge works and what it means for your business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-a-vat-reverse-charge\">What is a VAT reverse charge?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A VAT reverse charge is when the buyer of the service accounts for VAT instead of the supplier.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Usually, if a VAT-registered business buys something from another business, VAT will be added to the purchase price. The supplier will then pay the tax to HMRC as part of their VAT return.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With a reverse charge, the supplier doesn\u2019t add VAT to the purchase price and the buyer pays the VAT directly to HMRC.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"#example\">See examples of how reverse charge VAT works below<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-a-domestic-reverse-charge-for-vat\">What is a domestic reverse charge for VAT?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The domestic reverse charge (DRC) was introduced in 2021 and is designed to prevent fraud in the construction industry.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It only applies if both the buyer and supplier of services (or subcontractor and main contractor) are VAT-registered. It\u2019s important to note the value of reverse charge services doesn\u2019t count towards the <a data-type=\"knowledge\" data-id=\"1556\" href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/vat-registration-threshold-small-business-guide\/\">VAT registration threshold<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Reverse charge VAT applies to services that fall into the <a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/how-much-is-vat-online-vat-calculator\/\" data-type=\"knowledge\" data-id=\"1408\">standard rate of VAT<\/a> (20 per cent) and the reduced rate of VAT (five per cent). It doesn\u2019t apply to supplies or services that are exempt or fall into the zero rate of VAT.<\/p>\n\n\n\n<div id=\"nba-body-001\">\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-the-cis-and-vat-reverse-charge\">The CIS and VAT reverse charge<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The DRC applies to most construction businesses that are part of the <a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/trades\/construction-industry-scheme-guide\/\" data-type=\"knowledge\" data-id=\"1240\">Construction Industry Scheme<\/a> (CIS).<\/p>\n\n\n\n<div class=\"wp-block-group has-azure-300-background-color has-background has-global-padding is-layout-constrained wp-container-core-group-is-layout-69910985 wp-block-group-is-layout-constrained\" style=\"border-radius:10px;padding-top:var(--wp--preset--spacing--20);padding-right:var(--wp--preset--spacing--90);padding-bottom:var(--wp--preset--spacing--50);padding-left:var(--wp--preset--spacing--90)\">\n<p class=\"wp-block-paragraph\">Services that fall under the CIS and, as a result, reverse charge VAT include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\">construction, repair, extension, alteration, and demolition of buildings<\/li>\n\n\n\n<li class=\"wp-block-list-item\">decorating or cleaning of buildings during construction<\/li>\n\n\n\n<li class=\"wp-block-list-item\">installation of systems (such as lighting or heating)<\/li>\n<\/ul>\n<\/div>\n\n\n\n<p class=\"wp-block-paragraph\">Businesses that supply the following services are exempt from the reverse charge system:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\">surveying or architecture<\/li>\n\n\n\n<li class=\"wp-block-list-item\">drilling for natural gas or oil<\/li>\n\n\n\n<li class=\"wp-block-list-item\">manufacturers of machinery and utility systems<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">See a full list of <a href=\"https:\/\/www.gov.uk\/guidance\/vat-domestic-reverse-charge-for-building-and-construction-services#whentouse\" target=\"_blank\" rel=\"noreferrer noopener\" rel=\"noopener noreferrer\" target=\"_blank\">services that are covered by DRC<\/a> or exempt from it on the government website.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-does-reverse-charge-vat-mean-for-construction-businesses\">What does reverse charge VAT mean for construction businesses?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The supplier in the transaction will need to provide the buyer with a reverse charge invoice, instead of adding VAT to the cost of the service.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The buyer will then use the reverse charge invoice to calculate and submit a Construction Industry Scheme tax return to HMRC.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Buyers who pay reverse charge VAT are usually able to claim it back as input tax.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Construction businesses affected by the VAT reverse charge system will need to think about how it could affect their <a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/cash-flow\/what-is-a-cash-flow-forecast\/\" data-type=\"knowledge\" data-id=\"972\">cash flow<\/a>. Although they won\u2019t have to pay VAT upfront, they\u2019ll need time to pay it later when they submit their VAT return.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>This article is intended as a guide only. Reverse charge VAT can be complicated so make sure you speak to a professional accountant or tax expert if you\u2019re unsure of anything.<\/em><\/p>\n\n\n\n<div class=\"wp-block-group has-azure-200-background-color has-background has-global-padding is-layout-constrained wp-container-core-group-is-layout-30c80bf8 wp-block-group-is-layout-constrained\" style=\"border-radius:35px;margin-top:var(--wp--preset--spacing--90);margin-bottom:var(--wp--preset--spacing--90);padding-top:var(--wp--preset--spacing--90);padding-right:var(--wp--preset--spacing--90);padding-bottom:var(--wp--preset--spacing--90);padding-left:var(--wp--preset--spacing--90)\">\n<h2 class=\"wp-block-heading\" id=\"example\">Domestic VAT reverse example<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A small building firm, Stanley &amp; Sons, is hired by property developer Clubhouse Developments to renovate a property.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Both companies are VAT-registered and the work falls under the Construction Industry Scheme, so domestic reverse charge VAT applies:<\/p>\n\n\n\n<ul id=\"example\" class=\"wp-block-list\">\n<li class=\"wp-block-list-item\">Stanley &amp; Sons invoices Clubhouse Developments for the work, but doesn\u2019t include VAT on the price<\/li>\n\n\n\n<li class=\"wp-block-list-item\">the invoice will need to state that the VAT is being reverse charged<\/li>\n\n\n\n<li class=\"wp-block-list-item\">Clubhouse Developments calculates the VAT due on the service and includes this in their own VAT return to HMRC<\/li>\n<\/ul>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-reverse-charge-vat-for-businesses-with-overseas-suppliers\">Reverse charge VAT for businesses with overseas suppliers<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The VAT reverse charge also applies when a business buys services or supplies from an overseas business.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As with the domestic charge, the overseas business doesn\u2019t add VAT to their purchase price. Instead, the UK business accounts for the VAT and includes it in their <a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/how-to-do-a-vat-return\/\" data-type=\"knowledge\" data-id=\"1429\">VAT return<\/a> to HMRC.<\/p>\n\n\n\n<div class=\"wp-block-group has-azure-200-background-color has-background has-global-padding is-layout-constrained wp-container-core-group-is-layout-30c80bf8 wp-block-group-is-layout-constrained\" style=\"border-radius:35px;margin-top:var(--wp--preset--spacing--90);margin-bottom:var(--wp--preset--spacing--90);padding-top:var(--wp--preset--spacing--90);padding-right:var(--wp--preset--spacing--90);padding-bottom:var(--wp--preset--spacing--90);padding-left:var(--wp--preset--spacing--90)\">\n<h2 class=\"wp-block-heading\" id=\"h-vat-reverse-example-if-you-work-with-overseas-businesses\">VAT reverse example if you work with overseas businesses<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A marketing agency in the UK, Clearwater Media, hires an Italian supplier, La Migliore Camicia, to manufacture some merchandise for an upcoming event.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As La Migliore Camicia is based outside of the UK, the VAT will have to be reverse charged:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\">La Migliore Camicia invoices Clearwater Media for the work, but doesn\u2019t include VAT on the price<\/li>\n\n\n\n<li class=\"wp-block-list-item\">the invoice will need to state that the VAT is being reverse charged<\/li>\n\n\n\n<li class=\"wp-block-list-item\">Clearwater Media calculates the VAT due on the service and includes this in their own VAT return to HMRC<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Read more about how VAT works when you <a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-structure\/eu-to-uk-imports\/\" data-type=\"knowledge\" data-id=\"943\">buy goods from overseas businesses<\/a>.<\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-hmrc-reverse-charge-vat-invoice-example\">HMRC reverse charge VAT invoice example<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">On an invoice where the VAT is being reverse charged, the supplier can refer to the VAT as zero per cent.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The invoice must then include a reference to the fact that the VAT is being reverse charged. HMRC recommends using specific wording, such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\">reverse charge: VAT Act 1994 Section 55A applies<\/li>\n\n\n\n<li class=\"wp-block-list-item\">reverse charge: S55A VATA 94 applies<\/li>\n\n\n\n<li class=\"wp-block-list-item\">reverse charge: customer to pay the VAT to HMRC<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Usually, the invoice will also include the buyer\u2019s VAT number.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-more-small-business-guides\">More small business guides<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\"><a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/retail\/what-is-an-eori-number\/\" data-type=\"knowledge\" data-id=\"1152\">How to apply for an EORI number: a guide for businesses<\/a><\/li>\n\n\n\n<li class=\"wp-block-list-item\"><a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-structure\/eu-to-uk-imports\/\" data-type=\"knowledge\" data-id=\"1063\">Rules you need to know if you import or export from the EU<\/a><\/li>\n\n\n\n<li class=\"wp-block-list-item\"><a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/trades\/construction-apprenticeships-guide-for-small-businesses\/\" data-type=\"knowledge\" data-id=\"1239\">Construction apprenticeships: a small business guide<\/a><\/li>\n\n\n\n<li class=\"wp-block-list-item\"><a href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/trades\/what-will-the-trades-skills-shortage-look-like-in-2030\/\" data-type=\"knowledge\" data-id=\"23681\">What could the trades skills shortage look like in 2030?<\/a><\/li>\n<\/ul>\n\n\n\n<div id=\"nba-upsell-001\" class=\"wp-block-group has-azure-200-background-color has-background has-global-padding is-layout-constrained wp-container-core-group-is-layout-94e519ba wp-block-group-is-layout-constrained\" style=\"padding-top:var(--wp--preset--spacing--80);padding-right:var(--wp--preset--spacing--40);padding-bottom:var(--wp--preset--spacing--80);padding-left:var(--wp--preset--spacing--40)\">\n<h3 class=\"wp-block-heading has-text-align-center\">Ready to set up your cover?<\/h3>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\">As one of the UK&#8217;s biggest <a href=\"\/business-insurance\/\" data-type=\"page\" data-id=\"5152\">business insurance<\/a> providers, we specialise in <a href=\"\/business-insurance\/public-liability-insurance\/\">public liability insurance<\/a> and protect more trades than anybody else. Why not take a look now and build a quick, tailored quote?<\/p>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-a89b3969 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/quote.simplybusiness.co.uk\/business\">Start your quote<\/a><\/div>\n<\/div>\n<\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Photograph: Prins Productions\/stock.adobe.com<\/em><\/p>\n\n\n\n<div id=\"nba-body-end\">\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>A VAT reverse charge is when the buyer pays VAT instead of the supplier.<\/p>\n","protected":false},"author":44,"featured_media":26379,"comment_status":"open","ping_status":"closed","template":"","meta":{"sb_hreflang":"","sb_hreflang_url":"","disable_breadcrumbs":false,"sb_breadcrumbs":[],"sb_reviewed_by":"zach-hayward-jones","sb_review_date":"2026-02-27T16:15:13","sb_enable_content_gating":true,"footnotes":""},"categories":[344,343],"hidden-category":[],"coauthors":[20],"class_list":["post-26376","knowledge","type-knowledge","status-publish","has-post-thumbnail","hentry","category-business-tax","category-trades"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.2 (Yoast SEO v27.2) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Reverse charge VAT \u2013 a simple guide for businesses<\/title>\n<meta name=\"description\" content=\"What is reverse charge VAT and which businesses have to use this system? Read our guide for VAT reverse charge examples.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is reverse charge VAT?\" \/>\n<meta property=\"og:description\" content=\"Reverse charge VAT applies to construction businesses and those that work with overseas suppliers.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/\" \/>\n<meta property=\"og:site_name\" content=\"Simply Business UK\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/simplybusiness\" \/>\n<meta property=\"article:modified_time\" content=\"2026-02-27T16:22:22+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/10\/reverse-charge-vat.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"815\" \/>\n\t<meta property=\"og:image:height\" content=\"549\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Reverse charge VAT \u2013 a simple guide for businesses\" \/>\n<meta name=\"twitter:site\" content=\"@simplybusiness\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"5 minutes\" \/>\n\t<meta name=\"twitter:label2\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data2\" content=\"Conor Shilling\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/\"},\"author\":{\"@type\":\"Person\",\"name\":\"Conor Shilling\",\"description\":\"Conor Shilling is a professional writer with over 10 years\u2019 experience across the property, small business, and insurance sectors. 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Conor has worked at Simply Business as a Copywriter for three years, specialising in the buy-to-let market, landlords, and small business finance. <a href=\\\"https:\/\/www.linkedin.com\/in\/conor-shilling-b646632a\/\\\" target=\\\"_blank\\\" rel=\\\"noopener\\\">Connect with Conor on LinkedIn.<\/a>\"},\"headline\":\"Reverse charge VAT \u2013 a simple guide for businesses\",\"datePublished\":\"2024-10-21T15:48:14+00:00\",\"dateModified\":\"2026-02-27T16:22:22+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/\"},\"wordCount\":962,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.simplybusiness.co.uk\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/10\/reverse-charge-vat.jpg\",\"articleSection\":[\"Business tax\",\"Trades\"],\"inLanguage\":\"en-GB\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/#respond\"]}],\"reviewedBy\":{\"@type\":\"Person\",\"name\":\"Zach Hayward-Jones\",\"@id\":\"https:\/\/www.simplybusiness.co.uk\/#\/schema\/person\/4a3f88e9a2765aaf1490f85437168819\"}},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/\",\"url\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/\",\"name\":\"Reverse charge VAT \u2013 a simple guide for businesses\",\"isPartOf\":{\"@id\":\"https:\/\/www.simplybusiness.co.uk\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.simplybusiness.co.uk\/knowledge\/business-tax\/reverse-charge-vat\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/10\/reverse-charge-vat.jpg\",\"datePublished\":\"2024-10-21T15:48:14+00:00\",\"dateModified\":\"2026-02-27T16:22:22+00:00\",\"description\":\"What is reverse charge VAT and which businesses have to use this system? 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