VAT domestic reverse charge for building and construction services

It applies to:

• VAT-registered individuals or businesses in the UK
• Services reported under the Construction Industry Scheme (CIS)
• Standard rate (20%) and reduced rate (5%) VAT supplies

It does not apply to consumers or zero-rated supplies.

• Review contracts with sub-contractors to check if the DRC applies.
• Tell your suppliers if you’re an end-user so normal VAT rules are used instead.
• Account for the VAT on purchases through your VAT return.

• Confirm with customers whether they are end-users or onward suppliers.
• Apply the DRC only if the customer is not an end-user.

The DRC applies to most CIS-reportable construction services, such as:

• Constructing, altering, repairing, extending, demolishing, or dismantling buildings or structures
• Land-related work (roads, pipelines, walls, drainage, etc.)
• Installing heating, ventilation, lighting, or similar systems
• Painting, decorating, and cleaning during construction
• Site clearance, landscaping, and preparation

The DRC does not apply when these services are supplied on their own:

• Professional services from architects, surveyors, or consultants
• Manufacture or delivery of building components or systems
• Artistic installations, signage, or security systems

To use them:

1. Make sure VAT and CIS are turned on in QuickBooks.
2. When creating an invoice or bill, select the relevant reverse charge VAT code.

QuickBooks will:

• Automatically account for the reverse charge on your VAT return
• Show the correct amounts in Boxes 1, 4, 6, and 7 for standard VAT scheme users

Note: The DRC is not supported under the VAT Flat Rate Scheme. If you use Flat Rate VAT, speak to your accountant about your options.

For DRC-eligible sales, your invoices must:

• Include all normal VAT invoice details (VAT registration number, date, etc.)
• Clearly state that the domestic reverse charge applies
• Show the VAT amount or rate, but do not include VAT in the total amount charged
• Use one of these references:
  • “Reverse charge: VAT Act 1994 Section 55A applies”
  • “Reverse charge: S.55A VATA 94 applies”
  • “Reverse charge: Customer to pay the VAT to HMRC”

If you need to adjust VAT for a reverse charge transaction:

• Issue a credit note
• Reduce the output VAT and adjust the input VAT in your VAT return for that period
• If using self-billing or authenticated receipts, the customer must issue the credit note