VAT Returns

The domestic reverse charge (or DRC) refers to a new piece of legislation released by the UK Government. You can take a look at the comprehensive guidance from HMRC here.

In brief, the reverse charge will mean that certain businesses within the construction industry will no longer have to charge VAT on the supply of services or materials that are required to be reported under CIS. Other businesses will be required to account for the VAT they would have paid to their supplier directly to HMRC.

This has come about because of the opportunity for VAT fraud, particularly with regards to micro businesses, such as smaller contractors and sub-contractors, who do not pay over the VAT they have collected.

The domestic reverse charge for VAT in the building and construction industry will apply to building and construction services supplied at the standard or reduced rates that also need to be reported under CIS scheme, but relates not only to the supply of labour but materials used too. The reverse charge will not apply to consumers or final customers of building and construction businesses who do not make onward supplies of the building and construction services in question. Any consumers or final customers who are registered for VAT and CIS will need to ensure their suppliers do not apply the reverse charge on services supplied to them.