The Domestic Reverse Charge VAT starts on 1st March 2021 – ARE YOU READY?

16th February 2021 Nicky Cole
The Domestic Reverse Charge VAT starts on 1st March 2021 – ARE YOU READY?

From 1st March 2021 HMRC are introducing the Domestic Reverse Charge VAT scheme for CIS registered businesses.

Domestic reverse charge also (DRC) is a new way of accounting for VAT, it will apply to all VAT registered construction businesses in the UK. Put simply, the legislation moves the VAT liability from the supplier (subcontractor) of a service in the construction industry to the customer (contractor).

The reverse charge ONLY affects standard rate and reduced rate supplies between CIS businesses.  For work undertaken directly for the client, the current system will still apply.

It’s important to understand how this new legislation will affect your business processes, so we’ve put together this blog with the key information and tips on getting prepared.


You must use the reverse charge for the following services:

  • Constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • Constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • Installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • Internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • Painting or decorating the inside or the external surfaces of any building or structure
  • Services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works



Labour and Materials £1,000.00
VAT @ 20% £200.00
Amount Payable £1,200.00


Labour and Materials £1,000.00
Domestic Reverse Charge VAT @ 20% £0.00
Amount Payable £1,000.00

The invoice must state which items are subject to Domestic Reverse Charge (DRC).


The VAT is shown as an In and an Out on your VAT return and you will not receive/pay the VAT to your customer/supplier.

IMPORTANT: as a supplier, this could impact your cashflow as you will no longer receive the 20% VAT payment


Your software must reflect the new VAT tax codes  – please contact us if you need help setting this up.

Click here for a useful guide from Xero and also a flow chart below, to see whether you are affected by these changes.

Stay up-to-date with all the bookkeeping and accounting information relevant to your UK business


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