Glossary · UK
What is Domestic Reverse Charge (VAT)?
A VAT anti-fraud measure in construction where the customer, not the supplier, accounts for VAT on qualifying services from March 2021.
Full Definition
The Domestic Reverse Charge (DRC) for construction services is a VAT accounting change that came into effect on 1 March 2021, having been delayed twice from its original October 2019 start date. Under the DRC, for qualifying construction services supplied between VAT-registered businesses in the CIS supply chain, the customer (rather than the supplier) accounts for the VAT to HMRC. The supplier invoices without charging VAT and must annotate the invoice to indicate that the reverse charge applies and that the customer must account for the VAT. The customer then includes both the output VAT (as if they had charged themselves) and the corresponding input VAT claim in their own VAT return. The DRC was introduced to combat missing trader fraud (also known as carousel fraud), where suppliers charged VAT to customers but then disappeared without paying it to HMRC. The DRC applies to standard and reduced-rate supplies of building and construction services that are reported under CIS, excluding end-users (businesses that use the construction services for their own purposes rather than onward supply) and intermediary suppliers. Zero-rated supplies (e.g. new residential construction) are not affected. Businesses affected by the DRC may experience significant cash flow changes as they no longer collect VAT from customers.