VAT: deferral of new reverse charge for the construction industry
IMPORTANT ANNOUNCEMENT FOR ALL BUSINESSES REGISTERED FOR VAT IN THE CONSTRUCTION INDUSTRY
The date on which the new reverse charge was to come into force in the construction industry has been deferred by a year until 1 October 2020.
Explanation of the change
Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019.
To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.
However, HMRC remains committed to the introduction of the reverse charge and has already increased compliance resource.
The intervening year
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.
Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date which they can reverse by using the appropriate stagger option on the HMRC website.
The extra time should be used by businesses to prepare for the new reverse charge next year. But the issues that were raised in our blog dated 31st May 2019 still remain.
If you have any queries regarding the reverse charge or any other VAT issue, please do not hesitate to contact one of the team at JRW.
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.
There has been a long lead-in time ahead of the anti-fraud measure coming into force. The Government first confirmed it would be taking this measure forward at Autumn Budget 2017. A technical consultation on the draft legislation and its impact took place in summer 2018 and the final legislation and guidance were published in November 2018.
The long lead-in time was to allow for potential cash-flow and administrative impacts the change could have on businesses.
Businesses need to adapt their accounting systems for dealing with VAT and there will be a negative impact on the cash-flows for many affected businesses, as they will no longer get VAT payments from customers for services where the reverse charge applies.