UK Construction Invoicing Rules: CIS and Domestic Reverse Charge
Working as a sole trader or subcontractor in the UK construction industry requires compliance with two distinct regulatory frameworks enforced by HM Revenue and Customs (HMRC): the Construction Industry Scheme (CIS) and the VAT Domestic Reverse Charge (DRC).
CIS Deduction Rates Explained
| Subcontractor Status | Deduction Rate | Applied To | Remittance |
|---|---|---|---|
| Registered Subcontractor | 20% | Labour costs only | Contractor pays HMRC |
| Unverified / Unregistered | 30% | Labour costs only | Contractor pays HMRC |
| Gross Payment Status | 0% | None (Paid in full) | Subcontractor settles via SA/CT |
How Domestic Reverse Charge (DRC) Works
Introduced on 1 March 2021, the VAT domestic reverse charge applies to standard and reduced-rate VAT services reported under CIS. Instead of the subcontractor collecting VAT and paying it to HMRC, the main contractor accounts for the VAT directly on their own VAT return.
Crucial Rules:
- The subcontractor must clearly show the VAT rate and amount on the invoice.
- The VAT amount must NOT be added to the total payment figure demanded from the contractor.
- The invoice must state: "Reverse charge: Customer to pay the VAT to HMRC at 20% under section 55A VATA 1994."
- If the customer is an "end user" (e.g. building owner or property consumer), normal VAT rules apply instead.
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