Are you ready for the Domestic Reverse Charge?
What is it?
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 1 March 2021, having previously been delayed from October 2019.
Who does it affect?
It affects VAT registered construction businesses that 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). The DRC VAT should be applied to supplies that would fall under normal CIS rules and applies to both materials and labour.
The DRC will not apply to supplies to “end users”, that is, anyone who will not be making an onward supply of their own construction services. This includes the occupier of the building concerned or a developer who will be selling the completed building.
How does it work?
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.
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