The Construction Domestic Reverse Charge comes into force on 1 March 2021. It is, therefore, important that your construction business is ready for the changes.
Get Your Construction Business Ready with Xero
Whether you are a subcontractor or a contractor, Xero handles the Domestic Reverse Charge (DRC) automatically, ensuring you have the correct information shown on your CIS sales invoices.
For CIS bills you receive, Xero will know that you have to account for input and output VAT and will process this automatically, so the hard work is done for you.
- Four new taxes to help you comply with the DRC:
- 20% VAT on income
- 5% on VAT income
- 20% VAT expenses
- 5% VAT on expenses
- Automatic DRC calculations in your invoices, bills and credit notes
- Automatic DRC updates on your Making Tax Digital Return.
Using Xero as a Subcontractor
If you are a subcontractor, you need to ensure the DRC is shown on your invoices.
In Xero, you can use the ‘Domestic Reverse Charge on Income’ tax rates when raising invoices for construction services and related supplies.
Xero will know that VAT should not be charged and will inform your customer that they are to account for VAT.
If you are using Xero’s CIS feature, it will automatically calculate the CIS your supplier should withhold, so it is all done for you.
Using Xero as a Contractor
If you are a contractor, you need to ensure the DRC is shown on the bills you receive from your subcontractors.
In Xero, you can use the ‘Domestic Reverse Charge on Expense’ tax rates when posting bills for construction services and related supplies.
Xero will know that the reverse charge is to be applied and will automatically ensure the correct VAT is calculated.
If you are using the CIS feature, Xero will also calculate the amount of CIS to withhold.
To be ready for the implementation date on 1 March, you need to ensure:
1. You and your staff understand the new Domestic Reverse Charge for building and construction services rules, when it should be applied and when it shouldn’t – further guidance can be found on the HMRC website: HMRC Guidance – Construction Domestic Reverse Charge.
2. Your accounting software has been updated to deal with the DRC – contact Mark Tooby for advice on Xero accounting software on 0161 761 5231.
3. You consider the impact of any cash flow changes. It is important to seek professional advice from your accountant.
4. Your CIS customers and/or suppliers are informed that the DRC will apply to sales and/or purchases of building and construction services.