VAT calculator

If you've invoiced a VAT-registered contractor for building work and the amount that lands is £1,000 lighter than you expected, you probably haven't made a mistake. Since 1 March 2021, most work between VAT-registered businesses in the construction supply chain has gone through the domestic reverse charge (DRC) — you don't add VAT to the invoice, the contractor accounts for it instead, on their own VAT return. The calculator above still does the job you need it for: it tells you the VAT rate and amount that applies to the job. Under DRC, you just don't collect that amount yourself. Here's what that means for your invoice and your cash flow.

What the domestic reverse charge actually means

DRC is an anti-fraud measure, not a tax cut or a new rate. Before it existed, some construction businesses charged VAT, collected it from their customer, and disappeared before paying it over to HMRC — "missing trader" fraud. The reverse charge closes that gap for specified construction services: instead of the VAT passing through a subcontractor's bank account on its way to HMRC, the VAT-registered customer declares it on their own return instead — and in most cases reclaims the same amount straight back as input tax, so no cash actually changes hands over it. There's no VAT sitting with the subcontractor to collect and vanish with, because it never arrives there in the first place.

"Specified construction services" covers the same broad territory the Construction Industry Scheme does — building, altering, repairing, extending, demolishing, and the labour that goes with it. If the work would normally fall under CIS, it's likely to fall under the reverse charge too, provided both businesses involved are VAT-registered and CIS-registered, and sit in the same supply chain.

When it applies — and when it doesn't

DRC applies between two VAT-registered, CIS-registered businesses, where the customer is going to use the work as part of a further supply of construction services further down the chain. It doesn't apply, and you invoice normally with VAT added, when:

• Your customer isn't VAT-registered.
• Your customer is the "end user" — the final owner or occupier of the building, not going to re-supply the construction service on — or they've told you in writing they're an end user or an intermediary supplier connected to one.
• The supply itself is zero-rated, so there's no VAT to reverse.
• You're an employment business supplying staff or workers, rather than the construction service itself — that's always standard-rated.

Working out who counts as an end user isn't always obvious — connected landlord-and-tenant setups or companies in the same group are where this usually gets tricky. HMRC's domestic reverse charge guidance covers end-user status and mixed supplies (jobs with both standard-rated and reverse-charge elements on one invoice) in more depth than makes sense to repeat here. If you're not sure which side of the line a job falls on, ask HMRC or your accountant before you invoice, not after.

What goes on the invoice

You still work out the VAT — you just don't charge it. Your invoice needs the net amount, a clear statement that the reverse charge applies, and the VAT rate and amount that would have been due if it were standard or reduced-rated, so your customer knows what to enter on their own return. What it must not do is add that VAT to the amount payable. HMRC doesn't fix one exact form of words, but most invoicing software uses wording along the lines of "reverse charge: customer to account for the VAT to HMRC" — the point is that it has to be unmistakable, not buried in small print.

What it means for your cash flow

On standard-rated work, you collect VAT from the customer and hand it to HMRC on your own VAT return — for a few weeks or months, that money sits in your account first. Under DRC, that VAT never reaches you. You don't collect it, hold it, or pay it over. It still needs recording on your VAT return, as a reverse-charge sale rather than a standard one, so it isn't invisible to HMRC — it's just not cash that passes through your business. Worth building into how you budget, particularly if most of your other work is standard-rated and you're used to VAT sitting in the account for a while before it's due.

A worked example

Say you invoice a VAT-registered contractor £5,000 net for standard or reduced-rated specified construction services, under the domestic reverse charge. Run that through the calculator above at 20%: net £5,000, VAT £1,000, gross would-be £6,000. Your invoice shows all three figures, plus a note that the reverse charge applies and the customer must account for the £1,000 themselves. But the amount the contractor actually pays you is £5,000, not £6,000 — the £1,000 goes straight onto their VAT return instead of yours. For you, it simply never arrives.