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Domestic Reverse Charge for CIS

A post from the CIS Software blog.

Domestic Reverse Charge for CIS

If you’re a UK contractor or subcontractor dealing with VAT, the Domestic Reverse Charge (DRC) rule can be a bit of a minefield. This post explains what DRC is, when it applies, and why HMRC introduced it — all in plain English. Plus, see how CIS Manager now automates DRC invoicing to help you stay compliant and save time.

If you’re working in UK construction and deal with VAT, there’s a good chance you’ve come across the Domestic Reverse Charge (DRC). And if your first thought was “what now?” — you’re not alone.

DRC is one of those HMRC rules that sounds more complex than it needs to be. So let’s break it down, and I’ll show you how CIS Manager makes it easy to handle.

What is Domestic Reverse Charge?

In plain English: DRC flips the usual VAT process on its head.

Normally, a subcontractor charges VAT on their invoice and the contractor pays it. Under DRC, the subcontractor doesn’t charge VAT — instead, the contractor accounts for both the output and input VAT on their VAT return.

This only kicks in when:

  • Both parties are VAT-registered
  • The work qualifies as construction services (labour, not just materials)
  • The contractor isn’t the end user (i.e., they’re not the final client like a homeowner)

If any of that doesn’t apply, normal VAT rules stay in place.

Why HMRC Introduced It

Fraud. Specifically, missing trader VAT fraud. DRC helps HMRC reduce the risk by moving VAT collection away from subcontractors and onto contractors who are easier to monitor. Too many dodgy operators were charging VAT and disappearing before passing it on — this rule closes that loophole.

How CIS Manager Makes DRC Simple

We’ve built DRC support into CIS Manager so you don’t have to second-guess anything.

Here’s how to set it up:

  • VAT Settings for Contractors: You can now mark any contractor in the system as VAT-registered.
  • VAT Settings for Subcontractors: For each subcontractor, you can:
    • Indicate if they’re VAT-registered
    • Set their default VAT rate (20%, 5%, 0%)
    • Enable DRC by default when creating invoices
  • Smart Invoice Logic: When you generate an invoice, CIS Manager checks whether both the contractor and subcontractor are VAT registered and whether DRC is enabled. If DRC applies:
    • No VAT is added to the total
    • VAT rates still appear (for transparency)
    • The invoice is clearly labelled as a DRC invoice

Why This Matters

Get DRC wrong and you’re looking at fines, delayed VAT returns, or a very unhappy accountant. We’ve built this to take the pain out of the process — so you can focus on projects, not tax rules.

Try It Out

The new DRC features are live in CIS Manager now.

Already using the app? Log in and give it a go — just double-check your VAT settings and you’re all set.

New here? Sign up for free and see how easy CIS compliance can be when DRC is handled for you. Got questions or suggestions? Drop us a line at hello@cismanager.com — we’re always happy to help.