Detailed Guidance
DRC Basics
The Domestic Reverse Charge (DRC) for VAT was introduced to prevent VAT fraud in the construction industry.
Under the DRC, the customer receiving the service is responsible for accounting for the VAT to HMRC instead of the supplier. This means that the supplier does not charge VAT on their invoice, and the customer accounts for the VAT through their VAT return.
The DRC applies to specified services reported under the Construction Industry Scheme (CIS) and applies throughout the supply chain up to the point where the customer is the end user or is not CIS registered.
When to Apply DRC
The DRC must be applied when all of the following conditions are met:
- The supply is within the scope of CIS
- Both the supplier and customer are VAT-registered
- The service is not supplied to an end user or intermediary supplier
- The supply is standard or reduced-rated for VAT
Note: Under the new 2025 regulations, mixed supplies (where some elements fall under DRC and others don't) must be treated entirely under DRC if the DRC elements form the predominant part of the supply.
Invoice Requirements
When issuing a DRC invoice, you must:
- Show all the information required on a normal VAT invoice
- Make it clear that the reverse charge applies and that the customer is required to account for the VAT
- Include the amount of VAT due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown, but the VAT should not be included in the amount charged to the customer
You may use any of the following statements on your invoice:
- "Reverse charge: VAT Act 1994 Section 55A applies"
- "Reverse charge: Customer to pay VAT to HMRC"
- "Reverse charge: S55 VATA 94 applies"
Example DRC Invoice
INVOICE #12345
Date: 15 April 2025
From: Your Company Ltd
VAT Reg: GB123456789
To: Customer Ltd
VAT Reg: GB987654321
Description: Construction services - Building renovation
Amount: £10,000.00
VAT Rate: 20%
VAT Amount: £2,000.00 (Reverse Charge - Customer to pay VAT to HMRC)
Total Due: £10,000.00
Reverse charge: VAT Act 1994 Section 55A applies
Register for an account to access our Invoice Generator that creates compliant DRC invoices automatically.
IR35 Overview
IR35 (also known as off-payroll working rules) is tax legislation designed to identify contractors who work through their personal service companies (PSCs) but who should be treated as employees for tax purposes.
For construction contractors, IR35 status is determined by several key factors:
Outside IR35 Indicators
- Right to provide a substitute
- Control over how work is performed
- No mutual obligation for work
- Financial risk similar to a business
- Providing own equipment
- Not integrated into client's organization
Inside IR35 Indicators
- No right of substitution
- Client controls where, when, and how work is done
- Guaranteed work and payment
- No financial risk
- Equipment provided by client
- Treated like an employee
If you're found to be inside IR35, you'll need to pay income tax and National Insurance contributions as if you were an employee. This typically results in a higher tax burden than if you were genuinely self-employed.
Register for an account to use our IR35 Assessment Tool to check your status.
2025 Regulation Changes
The 2025 DRC regulations that came into effect on March 1, 2025, include several key changes:
The 2025 regulations have expanded the scope of construction services covered by the DRC to include:
- Site preparation services (even when not directly related to a construction project)
- Installation of building systems (HVAC, electrical, plumbing, etc.) whether as part of new construction or retrofitting
- Certain types of maintenance work previously excluded
- Services related to temporary or modular buildings
The new regulations provide clearer guidance on handling mixed supplies:
- If a supply includes both DRC and non-DRC elements, the entire supply is treated under DRC if the DRC elements form the predominant part
- The predominant part is determined based on the relative value of the elements, not by the time spent or materials used
- If the non-DRC elements exceed 30% of the total value, the supply may be split into separate DRC and non-DRC components with separate invoicing
The 2025 regulations provide more specific definitions:
- End users must now provide written confirmation of their status to suppliers
- Property developers are explicitly included as end users, even when they immediately sell the property after development
- Intermediary suppliers must meet specific criteria related to their position in the supply chain
- A new concept of "partial end user" has been introduced for entities that use some services themselves while passing others on
The 2025 regulations include stricter compliance measures:
- More detailed record-keeping requirements, including documentation of DRC applicability decisions
- A mandatory annual review of end user and intermediary status for ongoing contracts
- New invoice notation requirements for partial DRC applications
- Stiffer penalties for non-compliance, particularly for repeated errors
Compliance Tools
DRC Assist provides several tools to help you maintain compliance:
DRC Checker
Our DRC Checker allows you to quickly determine whether the reverse charge applies to your specific situation by answering a few simple questions about your services and clients.
Register to UseInvoice Generator
Our Invoice Generator creates compliant invoices with all required DRC information, ensuring you meet all the invoice requirements for either standard or reverse charge invoices.
Register to UseIR35 Assessment
Our IR35 Assessment Tool helps determine your IR35 status based on key factors like control, substitution, and mutuality of obligation, providing you with a detailed report.
Register to UseDocument Analysis
Our AI-powered Document Analysis tool reviews contracts and other documents for compliance risks related to both DRC and IR35, flagging potential issues before they become problems.
Register to Use