Accounting for UK construction
Construction carries two rules almost nothing else does: the Construction Industry Scheme, and a VAT reverse charge that inverts who accounts for the tax. Getting either wrong is expensive and common.
CIS, monthly and unforgiving
Contractors deduct tax from subcontractor payments and file a return by the 19th of the month following each tax month. A month with no payments still needs a nil return, and missing one is a penalty even though there was nothing to report.
The domestic reverse charge
For most construction services between VAT-registered businesses within CIS, the customer accounts for the VAT rather than the supplier. You invoice without VAT and state that the reverse charge applies. This changes both the invoice and what appears on your VAT return, and it does not apply to end users, which is the distinction to get right.
Costs by job
Materials, labour and subcontractors tracked per job is what turns a set of accounts into something you can price from. Without it you know whether the year was profitable but not which work made it so.
Common questions
Does the reverse charge apply to everything I invoice?
No. It applies to specified construction services between VAT-registered businesses in CIS. Supplies to an end user, typically the final customer for the building work, are outside it and are invoiced with VAT as normal. Establishing end user status is the supplier's practical problem.
What if I am both contractor and subcontractor?
Common, and both sets of obligations apply. You file monthly returns for the subcontractors you pay, and record the deductions suffered on what you are paid, which offset your own bill.
What rate do I deduct?
It follows the subcontractor's verification status with HMRC: a standard rate for those registered, a higher rate for the unverified, and gross payment status for some. Verify each one rather than assuming, since the rate is theirs and not yours to choose.
Last updated 2026-04-25. Thresholds, rates and allowances are indexed or reset at fiscal events and are deliberately not quoted here; check GOV.UK for current amounts.