Domestic reverse charge VAT for construction services - delay in implementation
The introduction of the domestic reverse charge for construction services will be delayed for a period of 12 months until 1 October 2020
What is the domestic reverse charge?
The domestic reverse charge VAT for constructions services means that the UK customer who gets supplies of construction services must account for the VAT due on these supplies on their VAT return rather than the UK supplier.
Why are the changes being introduced?
The changes are to remove the scope for fraudsters to steal the VAT due to HMRC and follows similar measures introduced in response to criminal threats for mobile telephones, computer chips, emissions allowances, gas and electricity, telecommunication services and renewable energy certificates.
When are the changes being introduced?
The Government first confirmed it would be taking this measure forward at Autumn Budget 2017 and final legislation and guidance was published in November 2018. Implementation was due to take place 1 October 2019. The long lead-in time was to allow for potential cash-flow and administrative impacts the change could have on businesses.
Concerns have been raised by industry representatives 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. Therefore, to help these busiensses and give more time to prepare, introdcution of the changes has been delayed for 12 months, until 1 October 2020.
This will also avoid introducing the changes in conjuction with Brexit.
What needs to happen?
Businesses need to adapt their accounting systems for dealing with VAT and there will be a negative impact on the cash-flows for many affected businesses, as they will no longer get VAT payments from customers for servcies where the reverse charge applies.
HMRC 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 occured, 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.
A briefing note on the delay in available on gov.uk. Reverse charge guidance notes are also available.
If you would like to discuss the potential impact of these changes on your business, please contact us.
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