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VAT Act 1994 s55AHMRC Construction DRC20% / 5% VAT

UK Domestic Reverse Charge VAT Calculator

Check whether the construction Domestic Reverse Charge applies, calculate the VAT the customer must account for, and produce the correct net invoice treatment for standard- or reduced-rated work.

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Check Whether You Should Charge VAT or Use the Reverse Charge

Enter the invoice value and the customer's VAT/CIS position to check whether the construction Domestic Reverse Charge is likely to apply, how much VAT the customer must account for, and what should be included in the supplier's invoice.

CIS Construction Reverse Charge Calculator

Computes net invoice value and mandatory HMRC invoice statement text

The reverse charge can apply to standard- or reduced-rated construction services.
Certain employment-business worker supplies are outside construction DRC.
The exclusion depends on the customer's qualifying end-user/intermediary status and written notification.

Understanding HMRC Domestic Reverse Charge Rules

The Domestic Reverse Charge under VAT Act 1994 s55A changes who accounts for VAT on qualifying construction services. It does not make the supply zero-rated. Instead, the supplier does not include the VAT in the amount charged and the qualifying customer accounts for the VAT on its VAT Return.

1. Scope
Supplier and customer must be VAT registered in the UK, payment must be reported under CIS, and the service must be standard- or reduced-rated.
2. Exclusions
End-user/intermediary exclusions can apply after written notification. Employment-business worker supplies are handled under separate rules.
3. Accounting
Customer accounts for output VAT under the reverse charge and can normally recover input VAT subject to the ordinary deduction rules.
ScenarioSupplier invoicesCustomer VAT treatment
Qualifying DRC supplyNet amount only + reverse-charge wordingAccounts for the applicable VAT rate under the reverse charge
End-user/intermediary exclusionNormal VAT at the applicable ratePays VAT to supplier under normal rules
Customer not VAT registeredNormal VAT rulesDoes not use construction DRC
Employment-business worker supplyCheck separate employment-business VAT rulesNot automatically construction DRC

The 5% disregard

Where a single construction supply contains a reverse-charge element that is 5% or less of the total value, the minor element can in certain circumstances be disregarded so that normal VAT rules apply. HMRC says the calculation is based on the overall contract value and should not simply be recalculated invoice by invoice.

Flat Rate and Cash Accounting

Reverse-charge supplies are excluded from the VAT Flat Rate Scheme calculation, and businesses cannot use the Cash Accounting Scheme for supplies subject to the domestic reverse charge. Both schemes therefore need separate treatment when a construction transaction falls within DRC.

Frequently Asked Questions (6 FAQs)

The construction reverse charge generally applies when the supplier is VAT registered in the UK, the customer is VAT registered in the UK, payment for the supply is reported within the Construction Industry Scheme, the services are standard- or reduced-rated, and no exclusion applies. The rules also exclude certain employment-business supplies of workers.

No. 'End user' has a specific HMRC meaning. The customer generally needs to be a VAT- and CIS-registered business that buys the specified construction services for its own purposes rather than making onward supplies of those services. The end-user exclusion applies where the customer notifies its supplier in writing of its status. An ordinary private homeowner is outside the reverse charge anyway because they are not VAT registered.

The construction reverse charge can apply to standard-rated 20% and reduced-rated 5% supplies. The VAT rate depends on the nature of the construction work and the building or project. The reverse charge is a method of accounting for the VAT; it does not turn a standard- or reduced-rated supply into a zero-rated supply.

The supplier must issue the normal VAT-invoice information and clearly state that the domestic reverse charge applies and that the customer must account for the VAT. HMRC says the precise wording is not prescribed. Examples include 'reverse charge: VAT Act 1994 Section 55A applies' or 'reverse charge: Customer to pay the VAT to HMRC'. The VAT should not be included in the amount charged to the customer.

Reverse-charge supplies are excluded from the VAT Flat Rate Scheme calculation, and businesses receiving reverse-charge supplies account for the VAT under the reverse-charge rules instead. The Cash Accounting Scheme cannot be used for supplies subject to the domestic reverse charge; those transactions are accounted for under the reverse-charge provisions.

Where a single supply contains a reverse-charge construction element that is 5% or less of the total value, the minor element can in certain circumstances be disregarded so that normal VAT rules apply. HMRC says this is based on the overall contract value and must not simply be calculated invoice-by-invoice. The disregard does not apply where the predominant element of a single supply is zero-rated.
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Key DRC Benchmarks
Standard VAT rate20%
Reduced VAT rate5%
Reverse-charge conditionVAT + CIS + qualifying supply
5% disregardMay apply
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