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VAT construction domestic reverse charge delayed for Brexit

The UK government has agreed to delay the implementation of domestic reverse charge VAT for construction services by a year, until October 2020. The move follows intense lobbying by the construction industry, which had warned that companies were not ready for what will be a significant change to the management of their business finances as the necessary information had not filtered through in time. Source: The Construction Index UK

Last month a coalition of construction associations wrote to the chancellor of the exchequer asking for a six-month delay to the planned 1 October 2019 introduction of reverse charge VAT.

They warned that customers paying VAT directly to HM Revenue & Customs instead of to the service supplier would have a disruptive impact on contractors’ cash flow, for which they needed to prepare.

It also coincided with the disruption of Brexit, and no one knowing what is going on there or what preparations might be required.

The chancellor has now given an additional 12 months for the construction industry to prepare – double what was asked for.

In a briefing note, HM Revenue & Customs said: “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 1st October 2020. This will also avoid the changes coinciding with Brexit.

“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.

“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.”