Domestic Reverse Charge for Building and Construction Services.

After postponing from October 2019 and then again from October 2020, Domestic Reverse Charge (DRC) is now due to be implemented by HMRC from 1st March 2021. This new legislation will see the Construction Industry move to Domestic Reverse Charge (DRC), often referred to as Reverse Charge for VAT. This is a major change to the way VAT will be collected within the Building and Construction Industry and applies to VAT registered businesses operating the CIS Scheme.

Businesses supplying construction services must not charge VAT where their customer:-

Is registered for VAT (in the UK), and
Will use the services to make an onward supply of construction services

Instead of the supplier charging VAT, the customer (recipient of the services), must self-account for VAT on the services received. Materials will also be included within the DRC if they have been supplied as a single package with the construction service. DRC will only affect services and supplies at the standard and reduced VAT Rates, it does not apply to Zero Rated VAT.

What Contractors need to do:-

Review your contracts with sub-contractors to decide if the DRC will apply to the services you receive under your contracts. You will need to notify your sub-contractors if it will.

What Sub-Contractors need to do:-

Contact your customers to get confirmation from them if the DRC will apply, including confirming if the customer is an end user or intermediary supplier. (End users will usually be the recipients who use the service for themselves, rather than sell the service on as part of their business of providing building or construction services).

For more information and a list of services included and excluded go to https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

An Update for CIA will be released prior to 1st March 2021. This update will incorporate default DRC VAT codes, and will have instructions on how to set up your own if you do not wish to use the defaults. By using the correct DRC VAT code, the VAT Return will automatically create the reverse transactions and update the relevant VAT Return boxes ready for submitting to HMRC. Further information will be included with the update.