Domestic Reverse Charge VAT for the Construction Industry

What is domestic reverse charge VAT?

Domestic Reverse Charge VAT legislation (DRC) is a change in the way CIS registered construction businesses handle and pay VAT. It is being introduced in the UK on 1st March 2021, having previously
been delayed from October 2019.

Why is it being introduced?

The domestic reverse charge VAT procedure is an anti-fraud measure designed to counter sophisticated criminal attacks on the UK VAT system. It intends to cut down on “missing trader” fraud, where companies receive high net amounts of VAT from their customers but have no intention of paying the VAT to HMRC.

Who will it affect?

It affects VAT registered construction businesses who supply or receive construction and building services that are reported under the Construction Industry Scheme (CIS). It means the customer (contractor) will be responsible for the VAT due to HMRC instead of the supplier (subcontractor).

What does it mean for you?

If you are a CIS subcontractor you will no longer charge VAT to your CIS customers. Instead, on your invoices you need to state your customer is responsible for the VAT and show what VAT rate should be applied.

If you are a CIS contractor when you receive a bill from your CIS subcontractor you are responsible for reporting both the input and output VAT on that bill.

Impact on your business

This change may affect your cash flow and your accounting method.