Government delays domestic VAT reverse charge until October 2020

The Government has announced that it will delay the implementation of the domestic VAT reverse charge for building and construction services by a year.

Following pleas from those in the Construction industry, the Government agreed that the new rules will not come into force until 1 October 2020.

Last month construction associations wrote to the Chancellor asking for a six-month delay to the rules which were due to come into effect on 1 October 2019.

They warned that businesses were not ready for what will be a significant change to the management of their business finances, and that businesses needed to be able to prepare for the disruptive impact on contractor’s cash-flow that comes with customers paying VAT directly to HM Revenue & Customs (HMRC), instead of to the service supplier.

The associations also highlighted the significant impact Brexit will have, with businesses unable to plan due to uncertainty of how the Government are going to proceed with the UK’s exit from the European Union.

The chancellor has now given an additional 12 months for the construction industry to prepare, double what those in the industry had hoped 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 1st October 2019.

“To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for 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.”

HMRC also said it will also take into account that some businesses have already changed their invoices to meet the needs of the reverse charge, which cannot easily be changed back. In situations where errors have genuinely occurred, HMRC will take into account the fact that the date has changed.

Richard Beresford, chief executive of the National Federation of Builders, said: “Contractors and sub-contractors weren’t ready for reverse charge VAT and we are delighted that the Government has listened to our industry campaign to seek a delay.”