Director of Accounting Partners UK & EMEA Xero
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VAT domestic reverse charge: What it is and how it could impact your clients

On 5th January, the government confirmed that VAT domestic reverse charge (DRC) for building and construction services will come into effect on 1 March 2021. It had previously been delayed from 2019 and then October 2020 by HMRC.

11th Feb 2021
Director of Accounting Partners UK & EMEA Xero
Blogger
In association with
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The 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. But how exactly will it affect the construction industry and how you manage VAT for these clients? 

The impact on construction workers

These new rules apply to Construction Industry Scheme (CIS) and VAT registered contractors and subcontractors. Under them, when a subcontractor sells construction services reported under CIS to the contractor, the subcontractor will no longer charge VAT. Instead it will be the contractor's responsibility to declare both the input and output VAT on their VAT return. 

The reverse charge does not apply to end users and intermediary supplier businesses. You can check the government website for the definition of end users and intermediary supplier business. 

With less than a month until the regulations come into place, it’s important to understand if any of your clients will be affected so you can help them to manage it. Here is a snapshot of who it impacts.

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