Reverse Charge VAT Implementation Delay

The government has announced a 12 month delay to the introduction of the domestic VAT reverse charge for construction services.  The decision to delay is in response to concerns raised by the industry that business needed more time to prepare for the changes. The new implementation date will be 1 October 2020.

As we explained in our client alert about the proposed change, which we sent to you in April, the VAT reverse charge makes the payment of VAT the responsibility of the customer rather than the supplier. 

From October 2020 all businesses providing construction services, within the Construction Industry Scheme, will need to apply a “reverse charge” for output VAT, unless the customer is not Vat-registered, an “end user”, or within certain other exclusions.

The reverse charge is being brought in as there are fears from HMRC that businesses in the construction industry are collecting VAT but not declaring it in their VAT returns. In a briefing note, HMRC said: “HMRC remains committed to the introduction of the reverse charge and has already increased compliance resource. It has put in place a robust compliance strategy for tackling fraud in the construction sector using tried and tested compliance tools.

 “In the intervening year, HMRC will focus additional resource on identifying and tackling existing perpetrators of the 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.”

Those affected will need to adapt their accounting systems to deal with VAT and there will be a negative impact on the cashflow for many affected businesses, as they will no longer get VAT payments from customers for services where the reverse charge applies.  This could have a particular impact for clients using the flat rate scheme and for them it might be worth considering leaving the scheme to facilitate the recovery of input tax.

Please let us know if you need our advice in this matter.



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