The Government has officially announced that the introduction of the domestic VAT reverse charge for the construction industry has been delayed until 1 March 2021 because of the impact of the coronavirus pandemic.
The VAT reverse charge was due to be introduced in October 2020 and would see an end to subcontractors receiving VAT payments in most situations.
It is now the second time the scheme has been delayed, with the original date for the regime to be introduced being scheduled for October 2019.
It has now also been announced that there will be an amendment to the legislation, making it 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.
HM Revenue & Customs (HMRC) has stated that it needs to bring in the reverse charge to combat ‘missing trader fraud’, in which suppliers charge their customers VAT, and then disappear before paying it to HMRC.
However, under the VAT reverse charge system, only the main contractor will collect VAT from the client to pass on to HMRC, rather than each party in the supply chain paying VAT to HMRC and claiming back their allowance.
The change is expected to have an initial impact on cashflow for subcontractors, who will no longer receive VAT payments from customers when the scheme is introduced in March 2021.