The Construction Industry Domestic Reverse Charge (DRC) was brought in on 1 March 2021 and changes the treatment of VAT in the construction industry.
It was brought in as HMRC felt there was a risk in the construction industry of sub-contractors charging VAT on their supplies which was never paid over to HMRC.
The DRC only applies to customers and suppliers who are CIS and VAT registered and on supplies which are subject to VAT at 20% or 5% rates.
Under the DRC, traditional VAT accounting of charging VAT on the supply which is then reclaimed by the customer is replaced with no VAT being charged and the customer operating the reverse charge mechanism, whereby they include entries for the input VAT (and a corresponding entry for the equivalent output VAT) on their VAT return.
End users, who are customers who are not making onward supplies of construction services (such as property developers, landlords and property owners), should notify their suppliers as such and the supplier is then required to charge VAT in the normal way on their invoice which the end user then reclaims in the normal way.
It is being suggested that many end users will choose not to notify suppliers as they feel this reduces their risk.
If you have any questions relating to the new Construction Industry Domestic Reverse Charge – please get in touch with your usual Lambert Chapman contact and we will be happy to assist.
Disclaimer
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.