One-year delay on VAT domestic reverse charge

The VAT domestic reverse charge for construction services will be delayed for 12 months until 1 October 2020, the government has confirmed.

Industry representatives had raised concerns that some businesses in the construction sector were not ready to implement the reverse charge for building and construction on the original deadline of 1 October 2019. The government says the introduction of the reverse charge has been delayed so that the changes don’t coincide with Brexit, and to help businesses by giving them more time to prepare.

A domestic reverse charge means the UK customer who get supplies of construction services must account for the VAT due on these supplies on their VAT return rather than the UK supplier doing so. 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, says the government.

Businesses need to adapt their accounting systems for dealing with VAT and there will be a negative impact on cashflows for many affected businesses, as they will no longer get VAT payments from customers for services where the reverse charge applies.

HMRC says it remains committed to the introduction of the reverse charge. In the intervening year, it will focus on identifying and tackling existing perpetrators of fraud. It will also work closely with the sector to raise awareness and provide additional guidance and support to make sure all businesses will be ready for the new implementation date.

HRMC recognises that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC will take into account the fact that the implementation date has changed.

Businesses that opted for monthly VAT returns ahead of the 1 October 2019 implementation date can use the appropriate stagger option on the HMRC website.

BESA chief executive David Frise says: “If the government had not delayed the changes, many SMEs would have been caught off guard, facing increased burden and restricted cashflows while simultaneously bracing for the serious disruptions caused by the UK’s planned withdrawal from the European Union on 31 October.

“While these changes have been delayed, it is important to remember they will still come into effect next year. So businesses must use this extra time to make sure they are fully prepared.”