The previously delayed VAT Domestic Reverse Charge (DRC) for the Construction Industry, is now coming into effect in the UK on 1 March 2021
We are ready to help you through the changes.
What is the VAT Domestic Reverse Charge?
The VAT Domestic Reverse Charge is a new way of accounting for VAT in the construction industry. It applies to VAT-registered construction businesses and 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.
DRC does not apply to services supplied to non-VAT registered individuals or businesses, which means work done for homeowners/domestic users should be invoiced in the usual way.
It also doesn’t apply to work done overseas, only UK companies providing building and construction services in the UK.
What does it mean for you?
If your business is part of the Construction Industry Scheme then you will be affected by the legislation, so it is important you know how it will affect your business and processes as DRC will be a mandatory requirement from HMRC.
If you are a VAT registered subcontractor (supplier) who provides building and construction services to a VAT-registered contractor (customer) who is CIS-registered, then you no longer need to account for the VAT. Instead, your invoice should inform your customer that the VAT reverse charge is applied, and they are responsible for the VAT using the reverse charge procedure.
If you are a VAT-registered contractor (customer) you will instead account for both input and output tax on invoices you receive from your VAT-registered subcontractors.
Hentons in partnership with Xero
The good news is that DRC is a feature already available within Xero Accounting Software.
As a Platinum Partner to Xero and having been recently nominated as one of the top three Xero Accounting Firms in the UK, Hentons have supported many of our clients in moving to the cloud with Xero accounting software.
So, if you are either new to Xero or currently using Xero, we can help through these changes. Contact us today.