What is the domestic reverse charge check?

Since March 2021, most standard or reduced-rated construction services supplied between VAT-registered businesses within CIS must use the domestic reverse charge, meaning the customer accounts for the VAT on their own return instead of paying it to the supplier. HMRC's check is aimed at confirming this has been applied correctly in both directions.

On the supplier side, HMRC checks that reverse charge invoices are issued correctly, without VAT added, and clearly state that the reverse charge applies and the customer must account for it. On the customer side, HMRC checks that the corresponding VAT has actually been declared as both output and input tax on the recipient's return.

HMRC also checks whether businesses have correctly identified end users and intermediary suppliers who are excluded from the reverse charge and should instead be invoiced normally with VAT charged in the usual way.

The domestic reverse charge for construction services is introduced under the Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019, made under section 55A Value Added Tax Act 1994.

The order sets out the specified services covered, broadly aligned with CIS-reportable construction operations, and the exclusions for end users and intermediary suppliers who notify their status in writing.

HMRC's general compliance and information powers under Schedule 36 Finance Act 2008 apply to any check into whether the reverse charge has been correctly implemented, alongside its normal VAT assessment powers under the VAT Act 1994.

Check that your invoicing system correctly flags reverse charge supplies and that VAT is genuinely excluded from the invoice amount charged to the customer where it should be.

Where you are the customer receiving reverse charge supplies, make sure your bookkeeping correctly enters both the output and input tax entries — getting only one side right understates or overstates your VAT position.

Get end-user and intermediary status confirmed and documented in writing from customers who claim it, since applying normal VAT instead of the reverse charge incorrectly can itself trigger a query.

Errors can lead to VAT assessments and interest on either side of the transaction, and in some cases both the supplier and customer end up in dispute with HMRC over the same invoices.

Correcting a widespread invoicing error retrospectively across many invoices and VAT periods is time-consuming and can require significant adviser input to unwind cleanly. Growth plan clients have free tax investigation insurance included, covering this kind of review — see /fees.

Cash flow can also be affected where VAT has been paid to a supplier that should have been reverse charged, since recovering it after the event is more difficult than getting it right initially.

Do not charge VAT in the normal way on a CIS-reportable construction supply between VAT-registered businesses without checking whether the reverse charge should apply instead.

Do not forget the corresponding input tax entry when accounting for reverse charge output tax as a customer; missing this understates the input tax you are entitled to reclaim.

Do not accept a customer's claim to end-user or intermediary status without getting it confirmed in writing.