Glossary · UK
What is Domestic Reverse Charge (Construction VAT)?
A VAT anti-fraud measure for construction services where the customer (main contractor) accounts for VAT rather than the supplier (subcontractor), effective from March 2021.
Full Definition
The CIS Domestic Reverse Charge (DRC) applies to standard and reduced-rated construction services supplied between VAT-registered businesses where the Construction Industry Scheme applies, effective from 1 March 2021. Instead of the subcontractor charging VAT on their invoice and remitting it to HMRC, the main contractor self-accounts for the VAT by recording it as both output tax (Box 1) and input tax (Box 4) on their VAT return. The net VAT effect is typically nil for the main contractor but eliminates the opportunity for subcontractors to collect VAT and disappear without paying it (missing trader fraud). The supplier's invoice must state "Reverse charge: VAT Act 1994 Section 55A applies" and show the VAT rate but £0 VAT charged. The DRC does not apply to supplies made to end users (property owners who will not make onward supplies of the construction services) or to connected group companies.