Domestic reverse charge VAT for the construction industry

Become DRC compliant

What is domestic reverse charge VAT?

Domestic reverse charge VAT legislation (DRC) is a change in the way CIS registered construction buisnesses handle and pay VAT. It is being introduced in the UK on 1 March 2021, having previously been delayed from October 2019.

Why is it being introduced?

The domestic 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.

Who will it affect?

It affects VAT registered construction businesses who 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).


What does it mean for you?

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.

Impact on your business

This change may affect your cash flow and your accounting method. We recommend you talk to your accountant or other advisor for advice.

See the HMRC guidance for construction and building services

Why choose Xero for domestic reverse charge?


Automate your processes

Xero handles domestic reverse charge automatically, ensuring you have the right information shown on your CIS sales invoices. For CIS bills you receive, Xero will know you have to account for input and output VAT, and process appropriately – the hard work is done for you.


Making Tax Digital VAT return

When filling out your VAT return form, you don’t need to worry about what boxes in the VAT return to update for domestic reverse charge because Xero automatically takes care of this for both sales invoices you send and bills you receive. With Making Tax Digital and Xero, submitting VAT returns has never been easier!

More resources on domestic reverse charge


Want to learn more about domestic reverse charge?

Find out more

Start using Xero for free

With Xero’s intuitive online accounting software the hard work is done for you. Easily manage domestic reverse charge, stay compliant and put business accounting tasks on autopilot.

Start your 30-day free trial today.

Try Xero for free
digital tax