HMRC has announced that it has delayed the introduction of the domestic reverse VAT charge for construction services for five months, due to the impact of the coronavirus pandemic on the construction sector.
The new way of accounting and paying for VAT had been due to come into force on 1 October, 2020, however, it will now be delayed until 1 March, 2021.
It was originally meant to be implemented on 1 October, 2019, however the introduction was delayed by 12 months after the industry and specialists criticised the lack of guidance from HMRC.
The reverse charge moves the responsibility for reporting a VAT transaction from the seller to the buyer of goods or services. The buyer of the goods or services reports both their purchase (input VAT) and the supplier’s sale (output VAT) in their VAT return.
The change is designed to remove the scope for fraudsters to steal the VAT due to HMRC, and follows similar measures introduced in other industries. Subcontractors will no longer get VAT payments from customers for services where the reverse charge applies, and will no longer be responsible for paying it to the HMRC in a VAT return.
Announcing the additional delay, HMRC has also made it a requirement for businesses to inform their subcontractors in writing that they are end-users or intermediary suppliers to be excluded from the reverse charge.
In response to the news, James Talman, chief executive of the NFRC, said: “I am delighted that the government has heeded the industry’s call to delay this disruptive policy. Those extra few months will be a lifeline for many construction firms. This change would have dried up cash flow in the supply chain just as firms started to recover from the impact of COVID-19.”
He added: “However, there is no guarantee that the industry will be ready for the changes next March, and we would like to have seen a longer delay, or even scrapping the idea entirely. The government should keep this policy under review and consider extending this delay if needed.”
