From 1st October 2019, 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
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:-
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 October, with information on the default DRC codes introduced and how to set up your own if you do not wish to use the defaults. By using the correct DRC code, the VAT Return will automatically create the reverse charge transactions and update the relevant VAT Return boxes.