Answers · UK 2025/26
What is the VAT Domestic Reverse Charge for construction in 2026 in the UK?
The VAT Domestic Reverse Charge (DRC) for construction means the customer (not the supplier) accounts for the VAT on construction services. It applies to VAT-registered construction businesses in the supply chain. It was introduced in March 2021 to combat VAT fraud.
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The VAT Domestic Reverse Charge (DRC) for construction services was introduced on 1 March 2021 and continues to apply in 2026/27. What it is: Under the DRC, when a VAT-registered construction subcontractor provides services to a VAT-registered main contractor, the main contractor accounts for the VAT (both output tax and input tax), rather than the subcontractor charging and collecting it. The subcontractor issues an invoice showing the net amount with a note that the DRC applies and that 'the customer must account for VAT'. Who it applies to: - Applies to supplies within the Construction Industry Scheme (CIS) supply chain. - Both the supplier and customer must be VAT-registered. - The customer must not be an 'end user' or 'intermediary supplier' (developers who self-build and sell, property owners commissioning their own builds, or businesses where the supply is used in their own business are end users). - If the customer is an end user, normal VAT rules apply and the subcontractor charges VAT. What services are covered: - Services within the scope of CIS, broadly: construction, alteration, repair, extension, demolition, and installation of systems (heating, lighting, air conditioning, etc.) in buildings and civil engineering. - Professional services only (architects, surveyors, consultants) are excluded. - Supplies of materials only (no labour) are excluded. Cash flow impact: - Subcontractors no longer collect VAT from contractors, reducing their working capital requirements but also eliminating the VAT float they previously held. - Main contractors account for and recover VAT simultaneously, so the net VAT cost is nil, but they must process the accounting entries. Penalties: - Incorrectly charging VAT when DRC should apply (or vice versa) can result in penalties. HMRC has published detailed guidance on end-user declarations and intermediary supplier status.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.