VAT domestic reverse charge (“DRC”)

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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The DRC is now in force and many in the construction industry are feeling the pressure.

Our experience is that our clients have had difficulty receiving invoices in the correct format and there is a general misunderstanding of the rules.

  1. The first step is confirming whether the works being supplied are within the Construction Industry Scheme (“CIS”).
  2. The second step is to confirm where you are in the supply chain. The DRC only applies to construction services which are “wholesaled” or supplied onwards to another person in the chain. This means the final users are not within the scope of the DRC.

Finally, the DRC applies to services taxed at 5% or 20%, therefore, most services in the course of construction of new houses, Relevant Residential Purpose (“RRP”) and Relevant Charitable Purpose (“RCP”) buildings are not be caught by the charge.

How does the DRC work?

The reverse charge is a means of accounting for VAT by the recipient rather than the supplier. Instead of a supplier charging VAT on services and the recipient claiming that VAT as input tax, the recipient accounts for both output and input tax.

For example:

A contracts with B to provide bricklaying services for an office block valued at £1,000.

Before 1 March 2021 the transaction would have been:

  • B would charge £1,000 (value of services) plus VAT £200 (20%) to A.
  • B would include £200 in box 1 of its return as output tax and £1,000 in Box 6 as its net sale.
  • A will pay B £1,200.
  • A would claim the £200 VAT charged as input tax in Box 4 of its return and £1,000 in box 7 as a net purchase.

After 1 March 2021 the transaction is:

  • B will invoice £1,000 for its services and state on the invoice that the reverse charge applies.
  • B will include £1,000 in box 6 as its net sale.
  • A will pay £1,000 to B.
  • A will claim the £200 VAT due as input tax in Box 4 of its return and £1,000 in box 7 as a net purchase. A will also claim the £200 VAT element due in Box 1 of its return as output tax and £1,000 in Box 6 as a net sale.

Overall, the same amount of VAT is being accounted for, it is just the way that it is accounted for that is changing.

Please find HMRC’s example invoice in the link below


If you would like further information about the DRC please contact one of team who will be happy to help.

Do you need extra information?

Ruth Corkin - Prinicipal - VAT and Indirect Tax Advisory at Hillier Hopkins

Ruth has been involved with VAT for over 30 years. She started her VAT career as a Customs and Excise Officer in Essex and then moved into consultancy with a variety of well-known accountancy firms. She is well known in the VAT world and is the proud author of many articles and technical works.

Contact Ruth at or on +44 (0)1908 713860

Based at the following office - Milton Keynes, Watford and London