Construction e-invoicing: CIS, reverse charge and 2029

Construction is the UK sector where invoicing is most complicated. A single subcontract payment can involve a CIS deduction, the VAT domestic reverse charge, an application for payment, a retention and sometimes a self-billed invoice raised by the contractor. The 2029 mandate does not change any of those rules. It does change the format: from April 2029, VAT invoices between VAT-registered businesses must be structured e-invoices.

This guide maps each construction practice onto e-invoicing, and flags what is not yet settled.

CIS is not VAT, but it shapes the invoice

The Construction Industry Scheme deducts tax at source from subcontractors' pay: 20% for registered subcontractors, 30% for unregistered ones, and 0% for those with gross payment status. HMRC's contractor guidance sets out the calculation:

1. Start with the gross amount on the subcontractor's invoice.
2. Take away VAT, materials the subcontractor paid for directly, consumable stores, fuel (except for travelling), plant hire, and manufacturing or prefabricating materials.
3. Apply the CIS rate to what is left.

The contractor then gives a payment and deduction statement within 14 days of the end of each tax month.

Worked example

A registered subcontractor (20% CIS) invoices £10,000 labour plus £2,000 materials it bought itself. The work is reverse-charged, so no VAT appears as payable on the invoice.

	£
Labour	10,000
Materials	2,000
Invoice total (VAT: reverse charge, customer accounts)	12,000
CIS deduction: 20% × 10,000	(2,000)
Paid to subcontractor	10,000

The VAT invoice is for £12,000. The CIS deduction reduces the payment, not the value of the supply. In EN 16931 terms, it must not be entered as a document-level "allowance", because allowances reduce the VAT taxable amount. EN 16931 has no dedicated field for a tax withheld at source. How CIS deductions should appear in a UK e-invoice, if at all, has not been confirmed.

The VAT domestic reverse charge

Since 1 March 2021, most standard- and reduced-rated construction services between VAT-registered businesses have used the reverse charge, where payment is reported under CIS. The customer accounts for the VAT. It does not apply where the customer is an end user or intermediary supplier that has given written confirmation, and it does not apply to employment businesses supplying staff.

HMRC's technical guide says the invoice must contain all the usual VAT invoice details and state that the reverse charge applies. Acceptable wording includes:

• "VAT Act 1994 Section 55A applies"
• "S55A VATA 94 applies"
• "Customer to pay the VAT to HMRC"

There is also a 5% disregard. If the reverse-charge element is 5% or less of the whole supply, both parties can agree at the start of the contract to ignore it. This is judged on overall contract values, not invoice by invoice.

In an e-invoice

EN 16931, the standard behind Peppol BIS Billing 3.0, has a VAT category for this: AE ("Reverse charge"). Its rules require:

• a 0% VAT rate on reverse-charged lines (BR-AE-05)
• the seller's VAT identifier and the buyer's VAT identifier or legal registration identifier (BR-AE-02)
• an exemption reason code or the text "Reverse charge" in the VAT breakdown (BR-AE-10)

Software that cannot show reverse-charge VAT should add wording telling the customer to account for it to HMRC, as the technical guide says. A free-text invoice note can carry the HMRC wording. See UK VAT category codes in Peppol and the dedicated guide to reverse charge e-invoices.

Applications for payment, tax points and authenticated receipts

VAT Notice 708 (section 23) explains why construction invoicing looks different from other sectors:

• For contracts with stage or periodic payments, the tax point is the earlier of receiving payment or issuing a VAT invoice. There is no basic tax point when the work is finished, unless anti-avoidance rules apply.
• So many firms send an application for payment (not a VAT invoice) and raise the VAT invoice only when they are paid.
• Retentions have a delayed tax point: when the retention is paid or invoiced, whichever comes first.
• Authenticated receipts are an alternative: the customer prepares a receipt, and the supplier authenticates it after payment. HMRC is clear that "an authenticated receipt is not a VAT invoice". It can only be used for periodic-payment contracts, and must contain all VAT invoice particulars.

Not yet confirmed: whether authenticated receipts will survive the mandate, and whether applications for payment will need a structured equivalent. The application-then-invoice pattern fits e-invoicing well: the e-invoice is issued when payment is received.

Self-billing by main contractors

Many main contractors self-bill their subcontractors. They raise the VAT invoice on the subcontractor's behalf under a written agreement, mark it "SELF-BILLING", and send it with payment (VAT Notice 700/62). Under the reverse charge, where the original supply was self-billed, the customer raises any credit note.

Peppol already publishes a BIS Self-Billing 3.0 specification, which uses invoice type code 389. HMRC's consultation response said concerns about "self-billing and the VAT reverse charge" have been addressed in other countries' mandates. The UK's own rules are still to come. See self-billing and e-invoicing.

Councils and housing associations as customers

Local authorities, government departments and housing associations can be deemed contractors under CIS once they spend more than £3 million on construction in 12 months. Work for them can carry CIS deductions on top of public-sector invoicing rules. See invoicing a council.

What changes, and what does not

	Changes in 2029?
CIS rates, verification, monthly returns	No change announced
Reverse charge rules and invoice wording	Rules unchanged; format becomes structured (category AE)
VAT invoices between VAT-registered businesses	Must be e-invoices from April 2029
Applications for payment	Not VAT invoices; treatment not yet confirmed
Authenticated receipts	Not yet confirmed
Self-billing	Expected to continue; UK rules not yet published
Real-time reporting to HMRC	Not at launch

What to do now

1. Map your documents. List every document you send or receive: applications, VAT invoices, authenticated receipts, self-bills and payment and deduction statements. Note which ones are VAT invoices.
2. Check reverse-charge coding in your software now. Wrong VAT treatment is the error most likely to fail validation.
3. Ask your software provider how it will carry CIS deductions alongside a Peppol invoice without touching the VAT totals.
4. Collect subcontractor VAT numbers and CIS status in clean master data. See master data cleanup.

This is general information, not tax advice. For specific cases, follow HMRC's guidance or speak to an adviser. See also the mandate guide and timeline.