What is the domestic reverse charge (DRC)?
The domestic reverse charge (DRC) is a UK VAT rule affecting the building and construction industry. Instead of paying VAT to the contractor, the customer pays the VAT directly to HMRC.
DRC applies where:
The customer is VAT registered
The services fall under the Construction Industry Scheme (CIS)
The supply is standard or reduced-rated for VAT
In Dext, you can apply DRC to contractor invoices by selecting the correct reverse charge VAT rate before publishing to your accounting software.
Before you begin
You must enable Domestic Reverse Charge in your integrated accounting software first:
DRC must be active in your accounting software before you can apply reverse charge VAT in Dext.
How to select DRC tax rates in Dext (Sage 50 and Xero)
Once DRC is enabled in your accounting software, you can apply it directly in Dext.
Open the item and go to the Item details page.
Select the Tax dropdown.
Choose the relevant Domestic Reverse Charge VAT rate.
There are separate DRC rates for:
Income and expenses
Standard rate VAT
Reduced rate VAT
Dext automatically saves the DRC tax rate you select. No additional confirmation is required.
Tip: You can use Supplier Rules to automatically apply the correct DRC tax rate for specific suppliers or transaction types.
How to apply DRC in Sage Accounting
If you are using Sage Accounting:
Open the item and go to the Item details page.
Set the Domestic Reverse Charge toggle to Yes.
This ensures the reverse charge VAT treatment is applied when the item is published.
Using DRC with the Construction Industry Scheme (CIS)
The Construction Industry Scheme (CIS) is a UK regulation where contractors deduct money from subcontractor payments and pass it directly to HMRC.
Domestic Reverse Charge typically applies where:
The transaction falls under CIS
The customer is VAT registered
The supply is within the scope of reverse charge VAT
If this applies to you may want to enable CIS on Dext. This ensures VAT and CIS deductions are handled correctly when publishing to your integration.
Key tips for working with DRC in Dext
Enable DRC in your accounting software before applying it in Dext.
Always select the correct DRC rate (standard or reduced).
Use Supplier Rules to automate reverse charge VAT where possible.
Review published transactions in your accounting software to confirm VAT treatment.
Correctly applying the Domestic Reverse Charge ensures VAT is reported accurately and reduces the risk of compliance issues with HMRC.