12 September 2019
Domestic Reverse Charge VAT

HMRC is introducing the Domestic Reverse Charge (DRC) to come into force on 1 October 2020. Initially due to begin on 1 October 2019, HMRC has postponed the implementation of the reverse charge to give businesses in the construction sector more time to prepare and avoid any changes coinciding with Brexit. If you work within the construction sector, here’s what you need to know:

What is the Domestic Reverse Charge?

The Domestic Reverse Charge will change the way VAT is paid on construction and building invoices. It’s a major revision to the system, establishing itself as another tactic to combat fraud in the construction sector.

It means that, from October 2020, customers receiving a service from an eligible construction or building company will have to pay the VAT due to HMRC rather than paying the supplier.

Who does the Domestic Reverse Charge apply to?

The DRC will apply to VAT registered individuals or businesses who supply or receive specified services under the Construction Industry Scheme (CIS). It also applies to goods supplied within specified services. See the list of services affected and excluded here.

What is the penalty for non-compliance?

According to HMRC, they will “apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith.”

Some businesses would have already made changes to their invoices to comply with the new rules as the delay on DRC was announced just under a month before it was due to launch on 1 October 2019. So, if errors are made, HMRC has confirmed that the delay in implementation will be taken into consideration with regards to consequences.

Next steps

Affected businesses have a year to start preparing for the new charge. If you’re not sure how to prepare, we can help you. Here at TBL Accountants, our team have extensive experience in construction accounting. Contact us today on 01702 466 886 or on our contact form.

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