UK accounting software that handles the domestic reverse charge for construction services

Several UK accounting packages currently support the VAT domestic reverse charge (DRC) for construction services:

Shortlist: For a small contractor or subcontractor, compare Xero, QuickBooks Online, and Clear Books—especially if you also need CIS handling. If you already use Sage, its construction-focused accounting plan is another option.

Before choosing, check that the specific plan handles the workflow you need: sales invoices, supplier bills, correct VAT-return boxes, and the required reverse-charge wording on invoices. HMRC says the supplier must not charge the VAT on a qualifying sale, and the invoice must make clear that the customer accounts for it; whether DRC applies depends on the transaction and customer status. (gov.uk)

If you tell me whether you’re a contractor or subcontractor, and whether you also need CIS returns, job costing, or payroll, I can narrow the options down.

Xero, QuickBooks Online, Sage, and FreeAgent all support the domestic reverse charge (DRC) for construction in the UK.

• Xero: Xero's own pages say it helps VAT-registered construction businesses follow the DRC rules, and that it can submit DRC VAT returns to HMRC. Xero helps VAT-registered construction businesses follow HMRC rules for the VAT domestic reverse charge procedure. Easily calculate the tax, create invoices with the right wording, and send your domestic reverse charge VAT returns directly to the tax office. Setup is manual: Xero provides four new VAT codes for domestic reverse charge: 20% and 5% rates for both purchases and sales. These codes must be set up manually. You can add them under Accounting > Advanced > Tax Rates.

• QuickBooks Online: QuickBooks supports the DRC with two VAT codes (20% and 5%). VAT and CIS need to be switched on first, and QuickBooks will automatically account for the reverse charge on your VAT return. Intuit's guidance is a good place to start, and it's the option most often recommended for smaller builders.

• Sage: Sage 50 and Sage Business Cloud both have DRC support. In Sage 50, Sage introduced the T21 VAT code for domestic reverse charge transactions. That code is available from version 26 onwards. Invoices coded with T21 will display a note such as 'Customer to pay output tax of £X to HMRC'.

• FreeAgent: This is a lower-cost option. One 2026 comparison says it supports DRC, but adds that some scenarios need more care. Check that it covers your situation before committing.

Before you pick one, note these points:

• Software only handles the mechanics. The system can calculate the accounting entry once you select the correct treatment. It cannot determine every contractual and VAT fact for you. You still need to decide whether each job is in scope.
• Scope is narrower than it looks. The domestic reverse charge applies to standard-rated (20%) and reduced-rated (5%) construction services only. It also doesn't apply when the customer is an end user, such as a homeowner, or is not VAT-registered.
• Mixed supplies are treated as a whole. If any part of a supply includes reverse charge work, the whole supply falls under reverse charge rules, unless the reverse charge part is 5% or less of the whole supply value.
• Materials-only supplies are excluded. If you are a UK contractor receiving invoices from UK subcontractors for domestic reverse charge services (labour or labour plus materials but not materials only), you should not be charged VAT on these invoices.
• Check the version and setup. With software that's manually installed on a computer, you might need to apply an update. Sources here vary in age, so confirm the current setup steps on each vendor's site.

If you tell me whether you're a contractor or subcontractor, whether you use the standard or flat-rate VAT scheme, and roughly how many staff and live jobs you have, I can narrow this down.

Most major UK accounting software platforms handle the Domestic Reverse Charge (DRC) for construction services. Because the DRC requires specific VAT accounting—where the customer accounts for VAT instead of the supplier—using software designed for this purpose is highly recommended to ensure compliance and avoid errors.

Software Options

The following platforms are widely used by UK construction businesses and provide built-in support for the Domestic Reverse Charge:

• Xero: Offers robust support for DRC. You can enable specific "Domestic Reverse Charge" tax rates (for both income and expenses) within the "Advanced" tax settings. Once enabled, Xero automatically handles the calculations, includes the required explanatory wording on invoices, and updates your VAT returns appropriately.
• Sage (Sage 50 & Sage Accounting): Sage includes dedicated tax codes (such as T21 for standard rate and T26 for reduced rate) to handle DRC transactions. These codes ensure that the net values are correctly reported in the appropriate boxes on your VAT return.
• QuickBooks Online: Supports DRC by allowing you to enable specific VAT codes for construction. Once enabled, the software can automatically apply these codes to invoices and bills, ensuring the VAT is reflected correctly on your return. Note: Ensure your settings for "VAT & CIS" are correctly configured to activate these features.
• FreeAgent: Handles DRC for both contractors and subcontractors. You must enable "non-standard VAT rates" in your settings to access the DRC options. Once set up, it allows you to explain bank transactions or create invoices that account for the reverse charge.
• Clear Books: Includes specific functionality for DRC, which can be enabled in your system settings. It allows you to select "Domestic Reverse Charge" as a VAT treatment on invoices and bills.

Key Considerations

• Verification is Required: While software simplifies the accounting, it does not replace the need to verify your subcontractors and confirm whether your customer is an "end user" or "intermediary supplier".
• CIS Integration: If you are in the construction industry, look for software that also integrates well with the Construction Industry Scheme (CIS). Platforms like Xero, Sage, and FreeAgent are generally well-regarded for handling both CIS deductions and DRC in a single workflow.
• Flat Rate Scheme: Be aware that the VAT Flat Rate Scheme is generally not compatible with the Domestic Reverse Charge. If you use the Flat Rate Scheme, you may need to discuss moving to standard VAT accounting with your accountant.

Recommendation: Before committing to a platform, ensure it is set up to handle your specific workflow (e.g., whether you are primarily a contractor or a subcontractor). Always consult with your accountant to ensure your specific settings and tax codes are configured correctly for your business structure.

UK accounting software with stated support for the construction domestic reverse charge includes:

• Xero — supports reverse-charge tax rates on invoices and VAT returns; it says it can calculate the tax and include the required invoice wording. ¹
• QuickBooks Online — says its construction accounting software supports the domestic reverse charge and VAT reporting. ⁸
• Sage Accounting — advertises domestic reverse-charge compliance, alongside CIS features and HMRC integration. ¹⁰
• Zoho Books — says it can apply domestic reverse charge to relevant transactions and supports construction/CIS workflows. ¹³

Practical tip: check whether the software handles both sides of your workflow—issuing invoices as a subcontractor and recording supplier bills as a contractor—and whether the features are included in your chosen plan. The rules apply only when the relevant conditions are met; HMRC says businesses should ensure their accounting systems can handle the charge. ³

HMRC also requires invoices to make clear that the reverse charge applies and to state the VAT amount due, or otherwise explain that the customer must account for it. ⁴⁷