The Domestic Reverse Charge (sometimes called just “reverse charge”) is a VAT mechanism where the buyer (recipient) of a supply—rather than the supplier—accounts for the VAT on that supply.

In effect, the supplier issues their invoice without charging VAT (or shows VAT but marks it as reverse charge), and the buyer “self-assesses” the VAT (i.e. declares the VAT as output tax) and can also reclaim it (subject to the normal VAT input tax rules).

Add this text or similar to your DRC invoice document template:

“Reverse charge: VAT Act 1994 Section 55A applies” or “Customer to pay the VAT to HMRC”.

To make managing this easier, we recommend adding a customer tag 'DRC' or similar to remind your staff to use the correct document templates and tax codes.

How different accounting systems handle this varies, so how it is managed in Zigaflow must be slightly different for each one.

Import the DRC tax codes from Xero:

-When creating an invoice, make sure that the line items have this code applied (use the Apply button to speed this up) and that the correct invoice document template is selected.

-The VAT will be shown as 0% on the invoice.

-When it is exported to Xero, the VAT will then be handled correctly by Xero.