What Is Reverse Charge? Definition & Examples

Detailed Explanation

The reverse charge moves the duty to account for VAT from the seller to the buyer. The supplier invoices the net amount. The customer works out the VAT, declares it as output tax on their own VAT return and, if entitled, reclaims it as input tax, so a fully taxable customer pays no VAT in cash. The two cases most small businesses meet are business-to-business services supplied across EU borders and the UK's domestic reverse charge for building and construction services. It applies only to business customers in the situations the law sets out, never to consumers. It is not the same as zero-rating: the supply is taxed at the normal rate, but the customer accounts for the tax.

Example

A Lisbon design studio bills a Munich company €4,000 with no Portuguese VAT, both VAT numbers and the words “Reverse charge”. The German company accounts for German VAT itself.

Why It Matters

Charging VAT where the reverse charge applies, or leaving it off where it does not, leaves one side holding VAT it cannot reclaim or a liability it never declared. The invoice wording and the customer's VAT number are the first things an inspector checks.

Key facts

EU cross-border services: for most business-to-business services, the place of supply is where the customer is established (VAT Directive Article 44), and the customer is liable for the VAT when the supplier is not established in that Member State (Article 196).
The EU invoice must carry the mention “Reverse charge” where the customer is liable for the VAT (Article 226(11a)) and the customer's VAT identification number (Article 226(4)). For Article 196 services it must be issued no later than the 15th day of the month after the one in which the supply took place (Article 222).
Member States may also apply a domestic reverse charge to listed supplies such as construction work, supplies of staff for construction, scrap and certain property supplies (Article 199).
UK construction: since 1 March 2021, the VAT domestic reverse charge applies to most standard and reduced-rated building and construction services between UK VAT-registered businesses where the payment is reported under the Construction Industry Scheme (CIS), unless the customer has confirmed in writing that it is an end user or intermediary supplier.
The UK construction invoice must show everything a VAT invoice needs, make clear that the reverse charge applies and the customer must account for the VAT, and state the VAT amount (or the rate, if the amount cannot be shown) without adding it to the amount charged. It must include the reference “reverse charge”; HMRC's example wordings include “Customer to pay the VAT to HMRC” and “VAT Act 1994 Section 55A applies”.
On the UK VAT return, the supplier enters only the net value of the sale and no output tax; the customer adds the VAT to its output tax and can reclaim it as input tax under the normal rules. The VAT Cash Accounting Scheme cannot be used for reverse-charge supplies.
InvoiceQuickly applies one tax percentage per invoice, adds no reverse-charge wording and copies saved tax IDs to new invoice PDFs. For a reverse-charge invoice, set the tax rate to 0% and type the required mention, both VAT numbers and, for UK construction, the VAT the customer must account for, into the notes. It does not check VAT numbers in VIES.
This entry covers the EU Directive and UK construction rules as published by the European Union and HMRC. It is general information, not tax advice; check with your tax authority or an adviser.

How it shows up in practice

Illustrative example: a VAT-registered plastering subcontractor in Leeds invoices a main contractor £8,000 for standard-rated plastering labour on an office refit, paid under CIS. The contractor has not given an end-user notice, so the domestic reverse charge applies. The invoice shows £8,000 net, the words “Reverse charge: Customer to pay the VAT to HMRC” and VAT of £1,600 at 20%, which is not added to the amount due. The subcontractor's VAT return shows £8,000 of sales and no output tax. The contractor declares £1,600 of output tax and, as a fully taxable business, reclaims £1,600 of input tax on the same return, so its net VAT cost is nil. CIS is a separate deduction: with a registered subcontractor, the contractor withholds 20% of the labour (£1,600) for HMRC and pays the subcontractor £6,400.

Common mistakes

Writing “Reverse charge” on invoices to consumers or to customers with no VAT registration; it applies only to business customers.
Leaving the customer's VAT number off an EU reverse-charge invoice, or not checking it in the EU's VIES service first.
Charging UK VAT to a CIS contractor who has not given an end-user or intermediary notice, when the domestic reverse charge should apply.
Adding the VAT figure to the amount due on a UK construction reverse-charge invoice; it must be shown but not charged.
Applying the construction reverse charge to zero-rated work, which it does not cover.
Issuing the EU invoice late; for reverse-charge services it is due by the 15th of the following month.

Frequently asked questions

How does the VAT reverse charge work?

The supplier invoices without VAT and states that the reverse charge applies. The customer works out the VAT on the net amount, declares it as output tax and, if entitled, reclaims the same amount as input tax on the same return. The tax is reported, but a fully taxable customer pays no VAT in cash.

What is an example of a reverse charge?

A Dublin software consultant bills a business in Lyon €2,000 for consulting. The place of supply is France and the consultant is not established there, so the French customer accounts for French VAT. The consultant's invoice shows €2,000, both VAT numbers and the mention “Reverse charge”.

How do I account for reverse charge VAT on my VAT return?

Under the UK construction reverse charge, the supplier enters the net sale with no output tax, and the customer adds the VAT to its output tax and reclaims it as input tax under the normal rules. EU countries have their own return boxes for reverse-charge purchases and services supplied, so follow your tax authority's return guidance.

Is reverse charge the same as zero-rated?

No. A zero-rated supply is taxable at 0%. Under the reverse charge the supply is taxed at the normal rate, but the customer accounts for the tax instead of the supplier. The supplier's invoice shows no VAT charged in both cases, which is why the wording on the invoice matters.

Who is an end user in the UK construction reverse charge?

A VAT and CIS-registered business that receives building and construction services but does not supply them on, for example a business having its own premises refitted. If it confirms that in writing, its supplier charges VAT in the normal way. Building contractors are not usually end users because they supply the work on.

Can InvoiceQuickly create reverse-charge invoices?

Partly. You can set the tax rate to 0% and type the reverse-charge mention, both VAT numbers and any VAT the customer must account for into the invoice notes. InvoiceQuickly has no built-in reverse-charge option, copies the saved business tax ID to new invoice PDFs and does not validate VAT numbers.

Related Resources

Last verified: October 2026

What Is Reverse Charge?