From March 1st 2021, the domestic reverse charge for VAT-registered businesses in the Construction Industry Scheme (CIS) takes effect.

What is the Domestic Reverse Charge

The domestic reverse charge must be used for VAT-registered businesses in the Construction Industry Scheme (CIS) from 1st March 2021. Rather than the supplier, it will be up to the end-customer who purchases the construction services or materials to account for the VAT themselves.

This changes the way that suppliers charge and account for VAT on their invoices.

The domestic reverse charge can apply to services or to materials which are VAT-taxable at the standard rate (20%) or reduced rate (5%). You won’t need to apply the reverse charge if the supply is VAT exempt.

When should I apply the domestic reverse charge?

The reverse charge will only apply if:

  • The supply falls within the scope of CIS

  • It would normally be charged at the standard (20%) or reduced (5%) rate of VAT

  • Both the supplier and the customer are VAT registered

  • The supplier and the customer are both CIS registered

  • The customer hasn’t provided confirmation that they’re the end user

In all other cases, normal VAT rules apply.

What do I need to know about the domestic reverse charge for VAT?

In short, the VAT reverse charge applies to VAT registered businesses which carry out construction work in the UK. Both the supplier and their customer must be VAT and CIS registered for the reverse charge to apply.

How do I apply the reverse charge?

You can enable the reverse charge tax code for relevant customers or suppliers by ticking the ‘Reverse Charge?’ box when creating or editing customer or supplier details.

Please note VAT rules can be very complicated so please check with a professional if you are not sure how to treat it.

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