Reverse charge VAT in Ireland: how it works in construction

For construction services supplied by a subcontractor to a principal contractor within the scope of Relevant Contracts Tax, the principal contractor is responsible for the VAT. The subcontractor does not charge it. The principal contractor declares the VAT on its return and, where entitled, claims it back on the same return.

Revenue’s guidance says the invoice carries the usual VAT invoice details except the VAT rate and VAT amount. It must also show the subcontractor’s VAT registration number and a statement that VAT on the supply is to be accounted for by the principal contractor. Where both agree, the principal contractor may issue the invoice instead.

Record the sale with a reverse-charge VAT code, not as zero-rated or exempt, so the return and your turnover both stay correct. The sale still belongs in your turnover, but no VAT is due from you on it. If you also do work directly for private customers, those invoices carry VAT as normal, so keep the two clearly separated.

You can usually still reclaim VAT on your own purchases for the reverse-charged work, subject to the normal rules.

Record the subcontractor’s invoice with a reverse-charge code that creates both the VAT due and, where you are entitled, the matching VAT deduction. On the return, the two usually cancel out, but both must be reported. Missing the reverse charge entirely is a frequent error that leaves the return understated on both sides.

Revenue’s guidance places most construction services at the reduced rate, and its worked examples use 13.5%. Rates change and some supplies are treated differently, so check Revenue’s VAT rate database for the specific work. Mixed contracts, supplies of goods with installation and work for non-contractors are the cases to discuss with your accountant.

A subcontractor completes €10,000 of plastering for a principal contractor under a relevant contract. The subcontractor invoices €10,000 with no VAT, showing its VAT number and the statement that VAT is to be accounted for by the principal contractor.

The principal contractor records the €10,000 cost, declares VAT on it at the applicable rate, and, if entitled, claims the same amount as a deduction on the same return. In Revenue’s examples the rate is 13.5%, which would give €1,350 declared and €1,350 deducted, so no net payment arises, but both figures appear on the return.

If you are a principal contractor, compare the reverse-charge VAT you declared each period with the subcontractor invoices you received. If you are a subcontractor, check your reverse-charged sales appear in turnover even though no VAT was charged. A quarterly review of these lines catches most errors before they compound. It also gives you a ready answer if Revenue asks how reverse-charge supplies were treated in a particular period, because the subcontractor invoices and the matching VAT entries are already side by side.

HelloBooks applies the tax treatment on each line, so a reverse-charged invoice can be coded to put amounts in the right VAT3 boxes, and the AI proposes the treatment based on the supplier and invoice. Review construction lines yourself; they are exactly the judgement calls a person should confirm. HelloBooks does not file Relevant Contracts Tax returns.