A reverse charge invoice is a VAT invoice where the supplier does not charge or collect VAT – instead, the customer accounts for VAT directly to HMRC. The supplier issues the invoice showing the net amount and the mandatory statement "Reverse charge: customer to account to HMRC for VAT". In the UK, the domestic reverse charge applies in specific situations – most notably for construction services under the CIS scheme and for certain goods such as mobile phones and computer chips above set thresholds.
What must a reverse charge invoice include?
A reverse charge invoice contains the same core details as a standard VAT invoice, with one crucial difference: the supplier does not show the VAT amount. Instead, the invoice must carry a mandatory statement transferring the obligation to account for VAT to the customer.
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On a reverse charge invoice, the supplier must show the applicable VAT rate but must not include the VAT amount in the total. The customer uses the rate to calculate the VAT they must account for on their own VAT return – both as output tax and input tax (so the net effect is usually nil, but both entries must be made).
When and why is a reverse charge invoice used?
The reverse charge cannot be applied at the supplier's discretion – UK VAT legislation specifies exactly when it must be used:
Construction services (CIS reverse charge) – Since March 2021, supplies of construction services between VAT-registered businesses within the Construction Industry Scheme must use the reverse charge. This covers building, alteration, repair, demolition and related services. It applies throughout the supply chain – including subcontractors – but does not apply when the customer is an end user or a connected intermediary.
Specified goods above thresholds – The domestic reverse charge applies to sales of mobile phones and computer chips where the total value of the supply exceeds £5,000. The aim is to prevent missing-trader fraud in these high-value, easily transportable goods.
Gas and electricity – Supplies of gas and electricity by a supplier who is not a utility company to a VAT-registered business fall under the reverse charge.
Emissions allowances and renewable energy certificates – Trading in carbon credits and similar environmental certificates between VAT-registered businesses uses the reverse charge.
Cross-border B2B services – When a UK business receives services from an overseas supplier, the UK business must account for VAT under the reverse charge. Similarly, when a UK business supplies services to an overseas business customer, the supply is outside the scope of UK VAT and the overseas customer accounts for VAT in their own country.
Construction reverse charge – who is an end user? An end user is a customer who uses the construction services for their own purposes and does not make onward supplies of construction services. For example, a retailer hiring a builder to fit out a shop is an end user. The end user must confirm in writing that they are an end user – otherwise the supplier must apply the reverse charge. If you are unsure, check HMRC's technical guide.
Both parties must report correctly: The supplier enters the net value of the supply in Box 6 of their VAT return (but no output tax in Box 1). The customer enters the VAT amount in Box 1 (output tax) and Box 4 (input tax), and the net value in Box 6 and Box 7. Getting the VAT return entries wrong is one of the most common errors with reverse charge invoices.
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