What is Domestic Reverse Charge?

From 1st March 2021 HMRC are introducing new construction industry VAT legislation – Domestic Reverse Charge (DRC).

This is an anti fraud measure which will move down the VAT liability from the supplier (Subcontractor) to the customer (contractor).

First of all there are a number of exemptions:

• Supplies of VAT exempt building & construction services.
• Supplies that are not covered by CIS, unless linked to such a supply.
• Supplies of staff or workers

The DRC does not apply to the following customers:

• Non-VAT registered customers.
• End users.
• Overseas customers.
• Intermediary supplier who are connected.

HMRC has a detailed list of services which DRC applies – https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

All subcontractors you need to ensure DRC is reflected on your invoices.

If you are a contractor you need to ensure DRC has been reflected on the bills you receive from your subcontractors.

To understand the impact of the changes here is an extract from Xero:

It is important to ensure all CIS registered businesses are using appropriate accounting software to ensure the entries are accounted for correctly & the sales invoices produced & finally the end VAT return is correct.

Users of Xero & Sage One can be confident that the software is ready to go from 1st March & to ensure you are confident how to make the necessary changes here is a recommend YouTube video to talk you through the steps https://www.youtube.com/watch?v=4d-Kwpx8OZc.

In summary, get informed, take action & communicate the changes to customers, supplier & admin staff.