The domestic reverse charge (DRC) is a directive wherein customers in the building and construction industry pay VAT due for a contractor's services directly to HMRC rather than to the contractor. DRC is enforced in the UK from 1 October 2020.
In Receipt Bank, you can apply DRC to contractor's invoices by applying the relevant tax rates to them. Below you will find the following information to help you understand what DRC tax rates are, how to set them up and apply them within Receipt Bank, and how to automate them.
Selecting DRC tax rates in Receipt Bank
Once enabled in your integrated software, you can select DRC for your costs and sales items directly within Receipt Bank.
On your item, select the 'Tax' drop down and select the relevant DRC tax rate. There are two different DRC rates for VAT in income and expenses, one standard, and one reduced. No need to click on anything else afterwards as Receipt Bank will automatically save the DRC tax rate you select from the drop down.
Note: You can use Supplier Rules with DRC to automatically add the relevant reverse charges with specific items.
DRC and the Construction Industry Scheme (CIS)
The Construction Industry Scheme (CIS) is an UK regulation, whereby contractors deduct money from a subcontractor's payments, and pass it directly to the HMRC. DRC applies if a recipient is VAT registered, and the payments are subject to CIS. You may want to enable CIS on Receipt Bank if this applies to you.