Domestic reverse charge VAT for construction services    

Please note that this topic is different to reverse charge VAT on services from abroad. For details of reverse charge on services from abroad, please click here.


The domestic reverse charge for building and construction services is effective from 1 October 2020.

This requires VAT registered contractors to account for output VAT on certain construction services supplied to them by VAT registered sub-contractors.

Normally the supplier charges output VAT to the customer on the sale and the supplier then pays the VAT to HMRC. However, for the domestic reverse charge, the customer accounts for the VAT and pays it to HMRC, hence the term reverse charge.

For details of obligations under the domestic reverse charge, please refer to HMRC guidance here.


Contractors receiving reverse charge services

If you receive construction services subject to the domestic reverse charge, you need to account for both the output VAT on the supply and input VAT reclaimable (provided you can fully recover input VAT). 

Recording the purchase in VT Transaction+

When entering the purchase invoice using the PIN function, enter the following in the invoice header section:

  • Total: Net value of purchase

  • Input VAT: No VAT

  • Net: Net value of purchase (auto)

Then in the analysis of net amount section, enter the following:

  • Line 1: the value of reverse charged output VAT, analysed to the VAT output account. This should be a minus value.

  • Line 2: the same figure, for the input VAT reclaimable (provided you can fully recover input VAT), analysed to the VAT input account. This should be a plus value.

  • Line(s) 3(4..): details of the analysis account(s) for the net amount of the purchase, in the usual way.

For example:

Completing your VAT return

If you enter the purchase invoice as described above, the VAT return should automatically populate with the required values in the appropriate boxes as follows:

VAT return element Included in VAT return
Reverse charged output VAT Box 1
Input VAT reclaimable Box 4
Net value of purchase Box 7


Sub-contractor supplying reverse charge services

Recording the sale in VT Transaction+

If you make a supply subject to the domestic reverse charge, you will not charge the customer VAT on your sales invoice, but the net value of the sale needs to be included in Box 6 of your VAT return.

To facilitate this, you should:

  • if you have already generated a sales invoice elsewhere, use the SIN (not underscored) function, enter zero VAT, and leave the ‘Type of sale (for VAT purposes)’ setting as ‘Normal’; or

  • raise a sales invoice using the SIN function and setup a service with the VAT rate as ‘Zero Rate’ by selecting Setup>Invoices>Products and Services.

Invoice details required

You also need to state clearly on the invoice:

  • that the domestic reverse charge applies, and that the customer is required to account for the VAT; and

  • how much VAT is due under the reverse charge or the rate of VAT

(For full details of your obligations in this respect, please refer to HMRC guidance here)

In VT Transaction+ this can be done on each sales invoice by entering text in the ‘Optional text at bottom of invoice’ box.

Or, it may be more practical to setup an invoice template with part of the required wording, by selecting Setup>Invoices>Templates>New>General and entering text in the ‘Optional text at bottom of invoice’ box.

Authenticated tax receipts

If you have used authenticated tax receipts for your sales, rather than invoices, you can use the REC function to record the sale with zero VAT.

Completing your VAT return

As you will not be charging output VAT on the sale, no output VAT on the sale will be included in Box 1 of the VAT return.

In Box 6, the net value of the sale should be included.

When generating the VAT return, this will occur automatically if you have not charged output VAT on the sale as described above.


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