Managing the Domestic Reverse Charge: Xero Guide
The Domestic Reverse Charge came into effect on 1 March 2021, and it is changing the way the construction industry invoices.
So, what is the Domestic Reverse Charge?
Simply, it means that only the end customer is charged VAT for construction work. Therefore, if you are a subcontractor, invoicing a contractor, you no longer charge them VAT.
Instead, you issue an invoice using Xero’s new Domestic Reverse Charge tax rates (details on how to turn these on are below). The good news is that Xero will know what VAT should not be charged and will inform your customer that they are to account for VAT.
And even better, if you are using Xero’s CIS feature it will also automatically calculate the CIS your supplier should withhold.
Here is an example of an invoice:
So, should the Contractor do?
Following on from the above example, the contractor that receives the above invoice needs to use the ‘Domestic Reverse Charge on expense’ tax rates when entering bills for construction services and related supplies. Xero will know that reverse charge is to be applied and will automatically ensure the correct VAT boxes are updated on the VAT return. If you are using the CIS feature Xero will also calculate the amount of CIS to withhold.
Here’s an example:
How to turn on these new Domestic Reverse Charge tax rates?
To turn these on simply select the ‘Add Domestic Reverse Charge Rates’ within the Tax Rates function in Advanced Accounting in Xero.
For further help and support please either watch Xero Video guide or contact us at