VAT for construction: thresholds, registration and the reverse charge

Published July 2026 · 8 min read

For most subcontractors VAT starts as someone else’s problem — until turnover creeps towards the threshold, or a contractor asks why your invoice doesn’t say “reverse charge”. Here’s the construction-flavoured version of VAT, in plain words. General guidance only — VAT decisions are worth a conversation with your accountant.

When you must register

VAT registration is compulsory once your taxable turnover passes £90,000 in any rolling 12 months. Rolling is the word that catches people — it’s not “per tax year”, it’s any 12-month window, so a busy stretch can tip you over mid-year. Keep an eye on your rolling total (your SubReady dashboard shows income live; asking “how much have I earned this year?” on WhatsApp works too).

You can register voluntarily below the threshold — sometimes worth it if your customers are VAT-registered businesses and you buy a lot of materials, since you can reclaim input VAT. It adds admin and makes you dearer to domestic customers, so weigh it properly.

What registration changes day to day

• You charge VAT (usually 20%) on your work — with big exceptions below.
• You reclaim VAT on business purchases.
• You file VAT returns to HMRC under Making Tax Digital — digital records, digital submission.
• Some construction work has special rates anyway — e.g. certain new-build residential work is zero-rated — another reason to get advice for your mix of work.

The domestic reverse charge — construction’s big quirk

Since March 2021, many supplies of construction services between VAT-registered, CIS-registered businesses use the domestic reverse charge. In plain terms:

• You don’t charge or collect VAT on qualifying supplies to a VAT-and-CIS-registered contractor who isn’t the end user.
• Your invoice states the supply is subject to the reverse charge, shows the VAT rate that would apply, but shows no VAT to pay over to you.
• The customer accounts for the VAT on their own return instead.

Why? To stop missing-trader fraud — subcontractors collecting VAT and vanishing. The side effect for honest subbies is cash flow: you no longer hold the VAT between invoice and return. If you relied on that float, plan for it.

When you still charge VAT normally

• Domestic customers — homeowners, landlords having their own property worked on.
• End users — businesses that consume the building rather than selling construction on (they should confirm end-user status in writing).
• Customers who aren’t both VAT- and CIS-registered.
• Supplies of materials only, with no construction service.

So a VAT-registered subbie often runs both flavours in the same week: reverse-charge invoices to the main contractor, normal VAT invoices to Mrs Hughes’s bathroom. The invoice has to get it right each time.

Reverse charge in practice: two invoices, same week

Monday: you invoice the main contractor £5,000 labour for the school refurb. They’re VAT- and CIS-registered and not the end user → reverse charge applies. Your invoice shows the labour, states “reverse charge: customer to account for VAT to HMRC”, notes the 20% rate — and you collect £5,000, no VAT (CIS deductions still apply to the labour separately).

Thursday: you invoice Mrs Hughes £2,400 for her bathroom. She’s a homeowner → normal rules. You charge 20% VAT, collect £2,880, and the £480 goes in your VAT return as output tax owed to HMRC.

Same trade, same week, opposite treatments — and getting them backwards causes real pain: charge VAT on a reverse-charge job and the contractor can’t reclaim it properly; miss VAT on a domestic job and the missing 20% comes out of your pocket.

Practical takeaways

• Watch the rolling £90k — monthly, not annually.
• Ask every commercial customer two questions: VAT-registered? End user? The answers decide your invoice.
• Keep VAT money (when you do collect it) mentally separate — it was never yours.
• Registered? Your records are now legally digital — which is no burden if your books already live on WhatsApp.

Start the 14-day free trial and let the paperwork keep up with the work.