Domestic Reverse Charge in Zoho Books (UK edition)

Domestic Reverse Charge in Zoho Books (UK edition)

Dear customers,
 
With HMRC implementing Domestic Reverse Charge (DRC) on construction services from 1 March 2021, Zoho Books now lets you track DRC on sales and purchase transactions. Although DRC on construction services is being implemented now, the reverse charge mechanism has been in effect since 2007 for various goods and services and Zoho Books supports reverse charge on such transactions.
 
What is Domestic Reverse Charge (DRC)? 
 
Domestic Reverse Charge (DRC) is a legislation introduced to prevent fraudsters from not paying their VAT due to HMRC which they had collected from their customers.
 
After a delay due to the Covid-19 pandemic, the DRC legislation has finally come into effect on 1 March 2021. DRC is applicable for most businesses that are registered for VAT who report under the CIS scheme. These businesses typically supply construction services which come under standard and reduced rate services.
 
When should you apply domestic reverse charge?
By default, domestic reverse charge is applicable on services that are covered under CIS. If an invoice contains both CIS services and non-CIS services, domestic reverse charge will still apply.
 
HMRC has provided a detailed flow chart to help you decide if you must apply domestic reverse charge or standard VAT rates. Refer them to know when you must apply the domestic reverse charge.​
 
Also, DRC does not apply to end-users or intermediaries who do not alter the materials but only trade them. This means that normal VAT rates will apply for end-users, provided they have given in written format (in writing, email, or contract) that they are an end-user or intermediary.
 
Applying domestic reverse charge in Zoho Books 
 
Before you can apply domestic reverse charge, you will have to enable it in Zoho Books settings. To enable:
 
  1. Log in to Zoho Books and click the Settings icon at the top right corner.
  2. Select VAT.
  3. Check the Enable Domestic Reverse Charge in Sales transactions option.
  4. Click Save.  
 

Now, the invoices you create in Zoho Books will have an option to apply domestic reverse charge on them. To apply domestic reverse charge for an invoice:
 
  1. Go to Sales > Invoices > + New.
  2. Select the customer for whom domestic reverse charge is applicable.
  3. Check the This transaction is applicable for reverse charge option. (This option will be shown only if the selected customer’s VAT treatment is United Kingdom)
  4. Fill in the other details and create the invoice. 

 
Now, although the VAT rate will be applied on the item, it will not be added to the total amount that you will collect from the customer.
 
For all VAT-registered organisations in Zoho Books, the option to apply DRC will be available on all purchase transactions by default. You can apply it while recording a purchase transaction.
 
What should you do now? 
  1. Take stock of the supplies that you make or receive from other VAT-registered contractors and check if DRC is applicable on them.
  2. Apply DRC on the respective transactions in Zoho Books.

If you have any queries on applying domestic reverse charge on transactions in Zoho Books, feel free to comment below. We are here to help you.
 
Cheers,
Alen J. Abraham
The Zoho Books Team 

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