Manage domestic reverse charge VAT with Xero

Automate calculating domestic reverse charge VAT, display details, and submit returns with Xero’s compliant software.

A reverse charge VAT return shows on a screen, calculated by Xero, freeing up contractors to carry on with their work.

Automate VAT calculations

Use Xero to apply domestic reverse charge VAT and wording to your bills and invoices. Xero automatically calculates the deductions, saving you time and reducing the risk of errors.

A screen shows VAT calculations and the wording automatically applied to an invoice by Xero, ready for reclaiming from HMRC.

Show rates to customers

Display reverse charge VAT wording clearly on invoices, so the recipients know which items it applies to and when they need to account for it.

Two people at a construction site discuss an invoice, which clearly displays reverse charge VAT calculations and wording.

Submit VAT returns

Once Xero has calculated the reverse charge VAT, your MTD VAT return is created ready for you to review in the system. You can then submit it direct to HMRC from Xero.

A screen displays a button for filing VAT returns with HMRC directly.

More about domestic reverse charge VAT

Domestic reverse charge VAT legislation applies to certain goods and services, including construction and some telecommunications services.

See which goods and services reverse charge applies to

Since March 2021, DRC VAT regulations have applied to CIS-registered construction businesses. This may affect your cash flow and your accounting method. We recommend you talk to your accountant or other advisor for advice.

See HMRC guidance for construction and building services

If you supply services as a subcontractor, Xero can send domestic reverse charge invoices for you. Xero calculates the CIS to deduct and shows which items DRC VAT applies to. Invoices show customers where they need to account for VAT and at what rate.

See how to send DRC invoices as a subcontractor

Contractors can use Xero’s reverse charge system to enter bills they’ve received from subcontractors that are subject to DRC. Xero knows that the contractor (as the customer) is responsible for both input and output tax and does the VAT calculations.

See how Xero handles DRC in VAT returns for contractors

Domestic reverse charge tax rates are set up in Xero ready to be added to your business. You can apply rates as defaults or to specific items in invoices and bills, so the correct amounts are reported on the MTD VAT return.

Xero automatically creates your MTD VAT returns from both the sales invoices you send and the bills you receive.

See how to use Xero to submit an MTD VAT return

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