- 5th June 2020
- Posted by: Suzy Hill
- Category: Business News, COVID-19 NEWS, VAT
Covid-19: delay to VAT reverse charge on construction services
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, and the VAT change will not now apply until 1 March 2021
The new rules mark a complete overhaul of the way VAT is payable on building and construction invoices, as part of moves to reduce fraud in the sector. Under the domestic reverse charge the customer receiving the service will have to pay the VAT owed straight to HMRC instead of paying the supplier if they report under the Construction Industry Scheme (CIS).
The change was originally scheduled to come into effect from 1 October 2019, but was then deferred for 12 months, after industry bodies and accounting specialists highlighted concerns about lack of preparation and the impact on businesses.
Now the start date has been put back from 1 October 2020 to 1 March 2021.
There will also be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.
HMRC says the additional amendment is designed to make sure both parties are clear whether the supply is excluded from the reverse charge.
It reflects recommended advice published in HMRC guidance and brings certainty for sub-contractors as to the correct treatment for their supplies.
If followed, it will remove a concern that HMRC may seek to challenge the reverse charge treatment where a business that qualified as an end user or intermediary supplier had not given any notification of their status.
In the intervening period before the change comes in, HMRC says it will continue to focus additional resource on identifying and tackling existing perpetrators of fraud in the construction supply chain. 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.
In a statement made before HMRC’s latest guidance was published Brian Berry, chief executive of the Federation of Master Builders, said: ‘SME builders are safely returning to work, but important social distancing measures on sites are understandably hampering productivity.
‘That this is having an impact on cashflow means it’s essential that the government delays its introduction of reverse charge VAT by at least one year.
‘This disruptive tax change risks hitting SMEs the hardest at a time when we need to protect jobs and livelihoods.
‘Delaying this policy would acknowledge that SMEs provide the bedrock of the industry and help support the recovery of the construction sector.’