VAT-reverse charge for construction services-start date delayed again

HMRC has postponed the introduction of the domestic VAT reverse charge for the construction industry until 1 March 2021. Initially this was to be introduced in October 2019, but was postponed until October 2020 to allow businesses to focus on Brexit preparations.

It has now been postponed again, this time because of the impact of the coronavirus pandemic. Several trade bodies had written to the Chancellor arguing for a postponement because of the negative impact of the reverse charge on cashflow, and the lack of resources to make the necessary changes to accounting procedures and invoices,

The measure, designed to stop “missing trader” fraud, will see an end to building subcontractors receiving VAT payments from their suppliers in most situations.

Under the VAT reverse charge system, only the main contractor, invoicing an “end-user”, will charge VAT. This will impact on cashflow for sub-contractors, who may previously have received VAT from their customer well in advance of having to pay it over to HMRC. It will also require a change to accounting systems.

HMRC has also taken the opportunity to make a technical change to the legislation. It will be a requirement that if businesses are to be excluded from the reverse charge because they are either intermediary suppliers or end-users, then they must notify their sub-contractors in writing of this status.

More information can be found here.

If you would like to discuss this change in more detail, or you would like to explore other ways of reducing the impact of VAT on your cashflow, please contact Steve Chamberlain, VAT Senior Manager.