HMRC has announced a five-month delay to the introduction of the domestic reverse charge for construction services, due to the impact of the coronavirus pandemic on the construction sector. The VAT change will not now apply until 1 March 2021.
A domestic reverse charge means the UK customer who gets supplies of construction services must account for the VAT due on these supplies on their VAT return, rather than the UK supplier.
This removes the scope for fraudsters to steal the VAT due to HMRC and follows similar measures introduced in response to criminal threats for mobile telephones, computer chips, emissions allowances, gas and electricity, telecommunication services and renewable energy certificates.
Following concerns from industry representatives that businesses in the construction sector are not yet ready to implement the reverse charge on the original implementation date of 1 October 2019, construction associations wrote to the Chancellor.
The delay will avoid the implementation of the VAT domestic reverse charge coinciding with Brexit. Clearly, businesses are currently facing uncertainty surrounding the UK’s exit from the European Union.
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Why delay in Reverse Charge VAT?
Richard Beresford, chief executive of the National Federation of Builders, said:
“Contractors and sub-contractors weren’t ready for reverse charge VAT and we are delighted that the Government has listened to our industry campaign to seek a delay.”
“The Government has given us double the time we recommended, and this will help us work together to set up improved online guidance, hold workshops and make sure the entire industry understands what reverse VAT charge means for their business.”
HMRC have announced they remain committed to the introduction of the reverse charge, already increasing their compliance resource, and putting in place a strategy for tackling fraud in the construction sector.
HMRC said it will also take into account that some businesses have already changed their invoices to meet the needs of the reverse charge. They cannot now easily change them back. In situations where errors have genuinely occurred, HMRC will consider the fact that the date has changed.
Julian Borley, VAT Director at Milsted Langdon said:
“For the construction sector as a whole, a 12-month delay will be a welcome relief, however, it’s frustrating for those organisations who have already spent time and money preparing.
“Those businesses who opted to change to monthly returns as a result of the reverse charge may wish to return to quarterly returns. Their compliance reporting requirements will have increased alongside the frequency with which VAT payments are made. If this is not changed back to quarterly returns, affected businesses may feel the effects of an increased administrative burden and experience a negative impact on their cash flow.”
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