22 January 2024

Understanding Domestic Reverse Charge in the Construction Industry

The Domestic Reverse Charge applies to standard and reduced-rate VAT services:

·         For individuals or businesses who are registered for VAT in the UK

·         Reported within the Construction Industry Scheme (CIS)


It applies only to transactions that already fall under the Construction Industry Scheme (CIS), and only those where both the contractor and subcontractor are VAT-registered. The Domestic Reverse Charge (DRC) will apply right through the supply chain up until the point where the customer is no longer a business or is an end-user. It will apply to any construction services covered by the CIS, therefore any invoices which are a mix of labour and materials will also apply under the DRC.


HMRC has created flowcharts that give you a good overview of how the VAT domestic reverse charges system works, depending on whether you’re a buyer or a supplier in the chain. You can view these here – reverse charge flowcharts


Other points to consider:

If you are using the VAT Cash Accounting scheme or the Flat Rate scheme, you will not need to apply the DRC rules.

If you are using an accounting software to prepare your VAT, the software provider should have implemented changes to record the reverse charge.

To find out when you MUST use the reverse charge, please click here.


As you can see, this is significantly different from the way most businesses deal with VAT, and your bookkeeping and invoicing systems will need to handle this system. If you need assistance with this, please do contact us.

Back to all news