VAT in Construction Doesn’t Have to Be Confusing
If VAT makes your head hurt, you aren’t alone.
Construction VAT rules can feel like someone designed them on a Friday afternoon before a bank holiday.
Here’s a simple breakdown, without the HMRC jargon.
1. When You Need to Register
You must register if your 12-month rolling turnover exceeds £90,000.
Not calendar year. Rolling. Month by month.
But some construction firms register earlier because:
• High material spend
• Mainly B2B clients
• Better reclaim potential
It’s not always about threshold — sometimes early VAT saves money.
2. Domestic Reverse Charge (DRC) — The Pain Point
If you work with VAT-registered contractors or subcontractors in construction, DRC often applies.
In simple terms:
You don’t charge VAT on labour.
The customer accounts for it instead.
It stops tax disappearing through supply chains.
If you’re unsure — check the contract. Don’t guess.
3. VAT on Materials vs Labour
You can reclaim VAT on materials purchased for jobs, if you’re VAT registered.
But don’t bundle everything into one line on invoices.
Separate them:
Materials
Labour
Cleaner for CIS. Cleaner for VAT. Fewer mistakes.
4. Zero-Rated Work Exists (And People Miss It)
New-build residential work is often zero-rated.
Conversions and renovations can have reduced rates in certain conditions.
One misunderstanding = months of corrections.
If you’re unsure, ask.
5. Keep VAT Records Tight
HMRC expect clean records:
• Purchase invoices saved
• Sales invoices numbered properly
• VAT treatment consistent
• Returns accurate and on time
Messy bookkeeping creates risk, stress, and unnecessary tax.
Weekly beats yearly.
You don’t need to love VAT. You just need to get it right.
We help construction firms simplify finance, tax and VAT so they can focus on quoting, building, running teams and getting paid.
Want to pay less tax without the headache?
You can download our free guide which will help you save money straight away.
5 Ways to Stop Overpaying Tax in Your Construction Business.
Or book a call if VAT is giving you a headache.