Domestic Reverse Charge VAT

Domestic Reverse Charge (DRC) is a new way of declaring VAT in the construction industry.

What is Domestic Reverse Charge?

It will apply to all VAT standard rated and reduced rated construction services that fall within the CIS scheme, where your sale is not to an end-user (i.e. not to a property developer or business who will use the building for their own purposes).


It has been introduced to combat VAT fraud in the industry, caused by a sub-contractor charging VAT on a sale but going missing or bankrupt before making a payment to HMRC. The new procedure moves the VAT liability down the supply chain, from the sub-contractor to the contractor. It was initially planned to come into force in October 2019 and again in October 2020 but it will definitely come into effect on the 1st of March 2021.

What has changed?

How this affects your business depends on whether you are the sub-contractor or the contractor in a project involving construction and building services. It is also worth noting that it only applies to transactions reported under CIS between VAT registered companies in the UK.

Since the 1st March 2021, when the new Domestic Reserve Charge for VAT came into place, the subcontractor no longer charges VAT on their sales invoice. Instead, the subcontractor will make a statement on their sales invoice that the customer must declare VAT under the DRC rules and show the VAT liability that is appropriate to the supply (either 20% or 5%). The contractor will apply the domestic reverse charge to the invoice by declaring VAT on the sale (in effect declaring sales VAT on behalf of the supplier) and then claiming back VAT on the purchase (providing the contractor is not partially exempt).

What is it we now need to do?

There are a number of steps you can take now to help with your cashflow, submission of VAT returns, and accounting software. We’ve put together the ‘Explained: Domestic VAT Reverse Charge for Building and Construction Services‘ guide that give you much more information on the next steps, what DRC applies and doesn’t apply to, and how you can figure out when you need to use it. This can be downloaded for FREE below.


Alternatively, Bracey’s can help you and your business as we offer a free 30-minute consultation for us to better understand your situation. This 30-minute free consultation gives you time to let us know more about your needs to see if our services are right for you

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Explained: Domestic Reverse Charge VAT

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