VAT on Labour: Do You Charge VAT on Labour Only?

Quick answer: Yes — if the trader is VAT-registered, VAT is normally charged on labour at the standard rate of 20%, exactly as it is on materials. Labour does not have its own VAT rate: it takes the rate of the job it belongs to. So labour on a routine repair is 20%, labour on a qualifying new build is 0%, and labour installing qualifying energy-saving materials in a home is 0% until 31 March 2027. If the trader is not VAT-registered, no VAT is charged on labour at all. And in the construction chain, the domestic reverse charge can mean the subcontractor charges no VAT on labour and the contractor accounts for it instead.

The short answer: it depends on the trader, not the labour

There is no separate "VAT on labour" rate in UK law. Labour is a service, and services supplied in the course of a business are taxable supplies. Whether VAT appears on the labour line of an invoice comes down to two questions, asked in this order:

1. Is the person doing the work VAT-registered? Only VAT-registered businesses charge VAT. A trader whose taxable turnover is below the £90,000 registration threshold does not have to register, and cannot charge VAT on labour or anything else — although they may register voluntarily. Once turnover passes £90,000 in a rolling 12-month period, registration becomes compulsory and VAT must be charged on every taxable supply from the effective date of registration.
2. What is the VAT rate of the job? Most work is standard-rated at 20%. A few kinds of work are reduced-rated at 5% or zero-rated at 0%. The labour follows the job, not the other way round.

That is why two customers can pay very different VAT on apparently similar work: a VAT-registered plumber fixing a leaking tap charges 20% on the labour, while a VAT-registered builder's labour on a qualifying new house is zero-rated. And a sole trader below the threshold charges no VAT on either job.

The rule that decides it: labour follows the main supply

When labour and materials are supplied together, HMRC normally treats the whole job as a single supply, and the VAT rate of the principal element applies to everything. A plumber who fits a new boiler is not making two supplies — one of a boiler and one of fitting — but one supply of a fitted boiler. The invoice may show labour and parts on separate lines for transparency, but the VAT rate is the same on both lines.

Worked example — routine repair. A VAT-registered plumber charges £450 for labour and £150 for parts, £600 net in total. At the standard rate, VAT is £600 × 20% = £120, and the customer pays £720. The labour element carries £90 of that VAT (£450 × 20%) and the parts £30, but the rate is 20% throughout because the job itself is a standard-rated repair.

Splitting the work across two invoices — one for labour, one for materials — does not change the answer if the customer is really buying one job. HMRC looks at the substance of what is supplied, not at how the paperwork is arranged. Genuinely separate supplies are different: if you buy materials from a merchant yourself and separately hire a fitter to install them, the merchant's sale of materials is standard-rated, while the fitter's labour takes the rate of the installation work.

What rate applies to labour on different jobs

When labour is 0% or 5%: construction and energy-saving work

Construction is where labour rates actually vary, and it is governed by VAT Notice 708. The headline cases are:

• New dwellings at 0%. Building a new house or flat that qualifies as a new dwelling is zero-rated, and that zero rate covers the builder's labour and the materials supplied as part of the construction service. Subcontractors working on a qualifying new dwelling also zero-rate their supplies, including labour-only supplies.
• Conversions and long-empty homes at 5%. Converting a non-residential building into a dwelling, changing the number of dwellings in a building, or renovating a dwelling that has not been lived in during the 2 years before work starts, is reduced-rated at 5%. The 5% rate covers the labour and the materials incorporated into the building.
• Energy-saving installations at 0% (for now). Installing specified energy-saving materials — insulation, solar panels, air and ground source heat pumps, draught stripping, heating controls, wind and water turbines, wood-fuelled boilers, and, since 1 February 2024, batteries for storing energy and smart diverters — in residential accommodation or a qualifying charitable building is zero-rated from 1 May 2023 to 31 March 2027. From 1 April 2027 these installations revert to the reduced rate of 5%. The relief covers both the materials supplied by the installer and the labour of installing them; materials bought from a retailer without installation are standard-rated. The old 60% materials test no longer applies to installations from 1 May 2023.

Worked example — heat pump installation. A VAT-registered installer charges £9,000 to supply and fit an air source heat pump in a home in November 2026. The installation is zero-rated, so VAT is £0 and the customer pays £9,000. The same job on or after 1 April 2027 would be reduced-rated: VAT of £9,000 × 5% = £450, total £9,450.

Our VAT on construction guide covers the new-build, conversion and reverse-charge rules in full, including the tests a dwelling must pass to qualify.

Labour in the construction chain: the domestic reverse charge

Since 1 March 2021, most construction services between VAT-registered businesses in the Construction Industry Scheme (CIS) are subject to the domestic reverse charge under section 55A of the VAT Act 1994. When it applies, the supplier does not charge VAT at all — the customer accounts for the VAT on their own return, as both output tax and input tax.

The reverse charge applies only when every condition is met: both businesses are VAT-registered, the customer is CIS-registered, the work is a CIS construction service that is standard- or reduced-rated (zero-rated new-build work is outside it), and the customer is not an end user or intermediary supplier. An end user — a business that receives the work for its own use rather than passing the construction services on — must tell the supplier in writing; without that written confirmation, the supplier must apply the reverse charge. If the reverse-charge element is 5% or less of an invoice, the parties can agree to disregard it and apply normal VAT to the whole invoice.

Labour-only subcontractors are squarely inside this: a bricklaying gang or a labour-only electrical subcontractor supplying construction services within CIS does not charge VAT on its labour where the reverse charge applies. But an employment business that merely supplies workers — people who work under the contractor's direction and control — is supplying staff, not construction services, and the reverse charge does not apply. The agency charges VAT normally at 20% on its supply.

Worked example — reverse charge on labour. A VAT-registered subcontractor supplies £4,000 of labour-only bricklaying to a VAT- and CIS-registered main contractor who is not an end user. The subcontractor invoices £4,000 with no VAT and writes "Reverse charge: VAT Act 1994 Section 55A applies" on the invoice. The contractor accounts for £4,000 × 20% = £800 as output tax and, if the work relates to fully taxable supplies, reclaims the same £800 as input tax.

CIS deductions are not VAT — do not confuse the two

Customers sometimes see a deduction on a subcontractor's payment and assume it is VAT. It is not. Under the Construction Industry Scheme, a contractor must deduct income tax from payments to subcontractors — 20% for CIS-registered subcontractors, 30% for unregistered ones, 0% for those with gross payment status — and pay it to HMRC as an advance towards the subcontractor's tax bill. The deduction is calculated on the labour element only, excluding VAT and excluding the direct cost of materials the subcontractor paid for.

Worked example — CIS and reverse charge together. A subcontractor invoices a main contractor £2,000 for labour and £800 for materials, £2,800 net, on a job where the domestic reverse charge applies. No VAT is charged, so the invoice total is £2,800. The contractor deducts CIS at 20% on the labour element only: £2,000 × 20% = £400, and pays the subcontractor £2,800 − £400 = £2,400. The £400 is income tax withheld, not VAT. The two systems run side by side: reverse charge decides the VAT, CIS decides the income-tax withholding.

Employees, agency workers and the self-employed: three different answers

• Your own employees: no VAT on wages. Employment is not a supply of services for VAT purposes. Salaries, wages and employer National Insurance contributions carry no VAT, and you cannot reclaim VAT on them because none was charged. This is why "labour costs" in a company's accounts are not the same thing as "labour charged to a customer".
• Agency workers: VAT at 20% on the agency's charge. When you hire workers through an agency, the agency is making a taxable supply of staff to you, standard-rated at 20% if the agency is VAT-registered. The VAT is charged on the agency's full charge.
• Self-employed tradespeople: VAT only if registered. A self-employed plumber, electrician or decorator charges VAT on labour only once VAT-registered — compulsory above £90,000 of taxable turnover in a rolling 12 months, voluntary below it. Below the threshold, the customer pays the net price and nothing more. Our when to register for VAT guide explains both the rolling 12-month test and the 30-day forward-looking test.

If you are the customer: paying VAT on labour, and reclaiming it

A business customer who pays VAT on labour can usually reclaim it as input tax, provided the labour relates to taxable supplies the business makes and the invoice meets the VAT invoice requirements — including the supplier's VAT number and the VAT amount shown separately. A private customer cannot reclaim VAT; the VAT is simply part of the price.

1. Is the trader actually VAT-registered? An invoice that charges VAT must show the trader's VAT number. If the number is missing, ask for it. A trader who is not registered has no right to charge VAT, and VAT wrongly charged is not reclaimable input tax.
2. Is the VAT arithmetic right? On a standard-rated job, the VAT is one-sixth of the VAT-inclusive price. A £720 bill therefore contains £720 ÷ 6 = £120 of VAT. If the invoice shows a different figure, something is off — most commonly, a reduced or zero rate has been applied to part of the job.

Use our VAT calculator to split any labour quote into its net, VAT and gross elements before you accept it, and our VAT invoices guide for the full list of what a valid VAT invoice must contain.

Common mistakes with VAT on labour

1. Assuming labour is always 20% — on qualifying new builds, conversions and energy-saving installations it is 0% or 5%.
2. Assuming a small trader must charge VAT — below £90,000 of taxable turnover, registration (and therefore charging VAT) is optional.
3. Thinking that invoicing labour separately from materials changes the VAT rate — a single job takes a single rate.
4. Charging VAT on a construction invoice that should be reverse-charged, or reverse-charging an invoice that should carry VAT — both errors distort the customer's return.
5. Treating a CIS deduction as VAT, or deducting CIS from a VAT-inclusive total instead of the ex-VAT labour element.
6. Treating agency staff as if they were employees for VAT — the agency's supply is standard-rated.
7. Paying VAT shown on an invoice from a trader who is not VAT-registered, and trying to reclaim it.

Frequently asked questions

Educational information and estimates. These tools do not submit VAT returns or determine the treatment of a specific transaction.