Domestic Reverse Charge

The basic idea of domestic reverse charge is that certain supplies within the construction industry, instead of having VAT charged on them, will now be supplied without VAT, but subject to the reverse charge. It is an anti-fraud measure that looks to counter attacks on the UK VAT system.

This will impact you as follows:

If a contractor has subcontractors who are VAT registered, the subcontractors will no longer charge VAT.

Contractors should communicate this to the subcontractors so that they can amend their sales invoices accordingly – they would no longer include VAT on their invoice but would instead need to state that the service is ‘subject to the domestic reverse charge’.

This suppliers’ flow chart will help you decide whether the domestic-reverse charge rule applies:

Please note that the reverse charge will not apply if the service is zero-rated or the customer is not registered for VAT.

There is a link here that provides you with all of the technical detail. However, it is quite “involved” so we have summarised some of the key points from this link above.

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services.