VAT reverse charge in construction: the invoice with no VAT on it

If you are a subcontractor billing a principal contractor for work on which RCT operates, your invoice carries no VAT figure at all. Not a zero rate, not an exemption — no rate and no amount, and a line of text telling the principal that the VAT is theirs to account for.

The rule is not new and it is not optional, but it still produces two errors on Irish sites every week: subcontractors who add 13.5 per cent anyway, and principals who forget that receiving a reverse charge supply drags them into VAT registration regardless of turnover.

The provision

Section 16(3)(b) of the Value-Added Tax Consolidation Act 2010:

Where a principal … receives services consisting of construction operations … from a subcontractor, then— (i) that principal shall, in relation to that supply, be an accountable person or be deemed to be an accountable person and shall be liable to pay the tax chargeable as if that principal supplied those services in the course or furtherance of business, and (ii) the subcontractor shall not be accountable for or liable to pay such tax in respect of that supply.

Two halves, and the second is the one that makes the invoice look wrong to people who have not met it. The subcontractor is not liable for the tax. There is nothing to show.

When it applies

Revenue's Tax and Duty Manual on the VAT treatment of construction services gives two triggers:

• "By a sub-contractor to a principal contractor (which includes public bodies) where the operation of RCT is required."
• "Between two connected persons."

The first is the everyday case, and it is tied to RCT. If RCT operates on the payment, the reverse charge applies to the supply. If RCT does not — a builder invoicing a private householder, for example — normal VAT rules apply and the builder charges VAT in the ordinary way. In Revenue's words: "a builder who builds an extension for a private individual charges and accounts for VAT on the supply under the normal rules."

The second trigger, connected persons, is a separate regime with its own rules and it does not depend on RCT.

What the invoice must look like

Revenue sets out the mechanics in six steps. The invoice part:

• "The charge for services by a sub-contractor does not include VAT."
• "The VAT registered sub-contractor issues an invoice to the principal contractor, which shows all the same information as appears on a VAT invoice, except the VAT rate and VAT amount. The invoice should include the VAT registration number of the sub-contractor."
• "The invoice should also contain the statement 'VAT on this supply to be accounted for by the principal contractor'."

Section 66(4)(a) of the VAT Consolidation Act 2010 is the statutory basis: the subcontractor must issue a document indicating that the principal is liable to account for the tax chargeable, and "such other particulars as would be required to be included in that document if that document were an invoice required to be issued in accordance with subsection (1) but excluding the amount of tax payable".

Section 66(4)(b) allows self-billing: where the principal and the subcontractor agree, section 71(1) may apply to the document as if it were an invoice — which is why Revenue notes that "if agreed by both the principal contractor and the sub-contractor the principal contractor may issue the invoice".

The deadline is the same as for an ordinary invoice. Regulation 23(c) of the Value-Added Tax Regulations 2010, S.I. No. 639 of 2010, sets it at "within 15 days following the end of the month during which a supply of services consisting of construction operations (to which section 16(3) of the Act applies) is made".

What happens on the principal's side

Three steps, and Revenue sets them out in order:

1. Pay the subcontractor without VAT. "The principal contractor pays the sub-contractor for the services. This payment should not include VAT."
2. Deduct RCT on the net figure. "If RCT is to be deducted by the principal contractor, it should be calculated on the VAT-exclusive amount."
3. Self-account. "The principal contractor should include the VAT on the services received from the sub-contractor in Box T1 of its VAT return for the period in which the supply is made," and where entitled, "claim a simultaneous input credit in its VAT return for the period".

For a fully taxable principal, steps in T1 and T2 cancel and the cash effect is nil. That is the design.

Where a payment is made in advance of completion of the supply, Revenue notes that the principal includes the VAT on the payment in the return for the period in which the payment is made.

The registration trap

This is the part that catches small principals, and it is not a subtlety:

Principal contractors required to operate RCT, who receive construction services from a subcontractor, must register and account for VAT irrespective of their turnover. This applies to both resident and non-resident principal contractors.

A firm below the VAT services threshold that engages a single subcontractor on a relevant contract becomes VAT registered by that act. There is no small-scale exemption from the reverse charge. Which threshold that firm was under before it engaged anybody is a question with its own wrong answer in circulation — see The VAT limit in Ireland is €42,500 — the €85,000 belongs to somebody else.

Revenue adds a further rule for cross-border work: "A principal contractor must always account for VAT on construction services received from non-resident sub-contractors irrespective of whether that sub-contractor is VAT registered."

And on the other side: non-resident subcontractors supplying construction services in the State only to principal contractors "are not obliged to register or account for VAT in the State", although they may register in order to reclaim VAT.

Government departments and local authorities

Revenue treats public bodies as principal contractors for RCT, and the consequence is that they must register and account for VAT on construction services they receive. The manual then notes what that means in cash: "Generally, these bodies do not engage in any taxable activities, and therefore, are not normally entitled to claim any deduction for VAT incurred."

For those customers the reverse charge is not cash neutral. That is their problem, not yours, but it explains why public sector clients are frequently more exact about invoice wording than private ones.

One rule the reverse charge switches off

The two-thirds rule — where the cost of goods used in the work exceeds two thirds of the price, the rate applicable to the goods applies to the whole transaction — does not apply to "construction services where principal contractors account for VAT on the receipt of construction services from sub-contractors", nor to construction services between connected parties.

That removes a calculation from the subcontractor's side of a reverse charge job. It does not remove it from a job invoiced normally, and the same firm may be doing both in the same week.

A short checklist

1. Decide RCT first, VAT second. If RCT applies, the reverse charge applies. The VAT answer follows the RCT answer, not the other way round.
2. Put the required statement in your invoice template. Revenue's wording is specific; a paraphrase invites a query.
3. Keep your VAT number on the invoice even though there is no VAT on it. Section 66(4) requires the same particulars minus the tax.
4. If you have just become a principal, register for VAT. Turnover does not save you.
5. Do not apply the two-thirds rule to a reverse charge supply. It is expressly excluded.

---

Position as at 29 August 2026. This article describes the law and is not tax advice. Section 16 of the VAT Consolidation Act 2010 has been amended since enactment, including the extension of the reverse charge to connected persons with effect from 1 May 2012; Revenue's Tax and Duty Manual is guidance and is updated regularly.

What Zirko does here, honestly: not this, not yet. Zirko carries a domestic reverse charge rate for several countries, but there is no Irish reverse charge rate in the tax table today, so an Irish subcontractor cannot pick one on a document. Until that is built, the reverse charge line is something you put on the invoice yourself. We would rather write that down than let you find it on a Friday afternoon.