From March 1st 2021, the domestic reverse charge procedure was implemented in the UK for construction services. From this date, suppliers (subcontractors) will need to issue reverse charge invoices, which passes the VAT reporting obligations to the buyer (contractor).
This article shows you how to create a domestic reverse charge invoice on your Debitoor account. You can read more about the domestic reverse charge procedure on our blog: “Domestic VAT reverse charge for construction services".
Step 1: Enable CIS deductions on your account
Prior to creating a domestic reverse charge invoice, make sure that CIS deductions are enabled on your account, if applicable to your sales. This can be found under “Settings” > “Business Information” > “Tax and Registration”. Toggle the button to “Enable CIS deduction on invoices” and enter your CIS rate.
Step 2: Create a new invoice
Now it’s time to create your invoice. Go to the “Invoices” tab and select “New Invoice”. Enter your customers details, payment terms, and details of the sale. You can enable the CIS deduction (if applicable) by checking the box underneath each item line.
Step 3: Apply the domestic reverse charge
A domestic reverse charge invoice requires more details than a standard VAT invoice. On Debitoor, you will need to apply the 0% VAT rate, and a label stating that it is a reverse charge transaction.
Change the VAT rate on the item line to 0%. Then, add the following in the “Terms” box:
Domestic reverse charge: Customer to pay the VAT to HMRC. VAT due: £XX.XX.
Applying this label informs the customer that they will need to account for the VAT on their VAT Return. If all of your invoices will apply the domestic reverse charge, you can click “Save as default” when you type in the “Terms” box to automatically apply the phrase on all future invoices.
Sample domestic reverse charge invoice
Below, you will find an example of a domestic reverse charge invoice created with Debitoor invoicing software. The VAT rate is set to 0% and the reverse charge label is clearly visible.
Domestic reverse charge on your VAT Return
When you create a domestic reverse charge invoice with Debitoor, it will automatically reflect as such on your VAT Return. These transactions should only be included in box 6 - VAT exclusive value of sales.
If you have any further questions about domestic reverse charge invoices, feel free to contact us via the in-app chat or by sending an email to firstname.lastname@example.org.