A: Paragraph 10.8.1 of VAT Notice 735 explains that DRC transactions are accounted for outside the Flat Rate Scheme. For DRC supplies you make you, as the supplier, must report the sale in box 6 of your VAT return, but must not account for VAT in box 1 and must also exclude this sale from your FRS VAT calculation (see paragraph 7.7). The customer receiving the service must account for the VAT on the supply under the reverse charge by putting the applicable VAT (detailed on the invoice) in box 1 with the net (purchase invoice value) in box 7 only. The VAT reported in box 1 by the customer is then reclaimable as input tax in box 4 subject to normal rules (see paragraph 8.5 of 735).
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