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CIS Domestic Reverse Charge for VAT

Asset 5


  • From 1st March 2021 a Domestic Reverse Charge (DRC) scheme will apply on the supply of building and construction services and goods/materials supplied with those services.
  • The DRC applies to standard and reduced rate supplies where the payments are reported under the Construction Industry Scheme (CIS), irrespective of the tax status of the sub-contractor.
  • DRC will apply where both the contractor and sub-contractor are registered under CIS AND registered for VAT.
  • Where DRC applies the sub-contractor will be responsible for applying the scheme. The sub-contractor’s invoice will not charge VAT but must show the VAT rate/amount. The contractor will pay the net amount, excluding VAT, to the sub-contractor, and pay the VAT that would be due to HMRC on their next VAT return – at the same time recovering this in the usual manner.


  • Will need to contact their customers to verify their VAT number and CIS status.
  • VAT numbers can be verified at
  • HMRC will issue a reference number if using the above checker. It is advisable to keep this.
  • They should also ask their customers if they are an ‘End User’ in writing (see below).
  • Where the customer confirms that they are an End User, DRC will not apply.
  • If the customer is not VAT Registered or registered for CIS, DRC will not apply.
  • Where the customer is VAT and CIS registered, DRC will apply, unless they have confirmed that they are an End User in writing. If no confirmation is received, then DRC must be applied.
  • When DRC applies, sub-contractors do not charge VAT on their invoice. The invoice must still show the rate (or amount) of VAT and include narrative similar to “Reverse charge: Customer to pay VAT to HMRC”; or “Customer to account to HMRC for the reverse charge VAT on the VAT exclusive price of items marked ‘reverse charge’ at the relevant VAT rate as shown.”
  • If a sub-contractor invoice contains a mixture of DRC services and non-DRC services, then DRC will apply to the entire invoice.
  • It is the sub-contractor’s responsibility to apply DRC.


  • Any contractor paying VAT not properly charged, e.g. to the sub-contractor where DRC should apply, will not be able to recover the VAT on their VAT returns.
  • Any sub-contractor invoice received that does not apply DRC correctly should be returned to the sub-contractor for correction.
  • A contractor should confirm their VAT and CIS registration to the sub-contractor.
  • If the contractor is also an End User (see below) they can optionally confirm this to the sub-contractor. Where they are an End User, DRC will not apply. Their End User status may vary from contract to contract.
  • If a sub-contractor invoice contains a mixture of DRC services and non-DRC services, then DRC will apply to the entire invoice.
  • Where DRC applies the net of VAT amount of the sub-contractor’s invoice is paid to the sub-contractor. The VAT element is included in the contractor’s VAT return as Output VAT and paid to HMRC. It is also recovered as input tax on the same VAT return.
  • It is the contractor’s responsibility to ensure the correct DRC rate is applied. If they believe the applied DRC rate is wrong, they should apply the correct rate and ensure they pay the VAT to HMRC and not to the subcontractor.

End Users

  • An End User is the final customer of building and construction services. They do not make an onward supply of those services to another customer.
  • A business may be an End User for some contracts (e.g. if working on a building for their own use), and not on others.
  • The End User may be registered for CIS as a contractor.
  • If the end user confirms their status to the sub-contractor in writing, DRC will not apply.
  • HMRC’s suggested wording is “We are an end user for the purposes of section 55A VATA 1994 reverse charge for building and construction services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge.”
  • The End User is not currently obliged to confirm their End User status. If no confirmation is given DRC will apply.

Intermediary Suppliers

  • These are VAT and CIS registered businesses that are connected or linked to End Users.
  • If the customer is an Intermediary Supplier normal VAT rules will apply.

Other Considerations

  • CASH FLOW – With sub-contractors not receiving the VAT element of their invoices this will impact their immediate cashflow. For VAT purposes, if most of their work is DRC, then they may be in an ongoing VAT refund situation. In this case it may be beneficial to change to monthly VAT returns rather than quarterly to help with cashflow.
  • FLAT RATE SCHEME – DRC supplies are excluded from the flat rate scheme. A sub-contactor may find it advisable to leave the flat rate scheme and revert to normal VAT accounting to recover input VAT on business expenses.
  • CASH ACCOUNTING – This cannot be used for sales subject to DRC, even though it can be used for other sales. As sub-contractors are not charging VAT under DRC it may be beneficial for them to change from Cash Accounting to Invoice Accounting.
  • AUTHENTICATED TAX RECEIPTS / SELF BILLING INVOICES – These are issued by the customer/contractor and must show the suppliers name, address, and VAT number. In addition, they must show the amount or rate of VAT due under DRC together with appropriate narrative, e.g. “We will account for and pay the output VAT to HMRC” or “As the UK customer we will pay the VAT due to HMRC.”