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The introduction of the domestic reverse charge for construction services is still scheduled for 01 March 2021.  Many voices are calling for a further delay due to the ongoing pandemic but so far HMRC have not indicated this timescale will be relaxed.

A domestic reverse charge means 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.

This removes 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.

There has been a long lead-in time ahead of the anti-fraud measure coming into force to allow for the potential cash-flow and administrative impacts the change will have on businesses.

A technical consultation on the draft legislation and its impact took place in summer 2018 and the final legislation and guidance were published in November 2018.  The domestic reverse charge for building and construction services was originally planned to come into force on 1 October 2019, but this was delayed for a year in response to industry concerns that some businesses were not ready to implement the changes required and was delayed by a further five months due to the pandemic.

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 services where the reverse charge applies.

Early in the pandemic HMRC announced a deferral of VAT payments between 20 March and 30 June.  Any VAT payments deferred from this time period should be paid in full on or before 31 March 2021.

For VAT payments due from 1 July, companies should make sure they are ready by:

  • Setting up cancelled direct debits in enough time for HMRC to take payment
  • Ensuring VAT returns are submitted as normal and on time
  • Paying the VAT in full on payments due after 30 June.

It is important you plan for both these issues in relation to your cashflow.  If in doubt you should get in touch with your accountants sooner rather than later as these two measures are set to coincide.

Finally, HMRC has written to VAT‐registered businesses that trade with the EU to make sure they are aware of the changes that will take effect from 1 January 2021, when the UK will operate a full, external border with the EU.  Import processes for non‐controlled goods will be introduced in three stages in January, April and July 2021, and the HMRC letter sets out what companies need to do to regarding customs declarations and duties, as well as accounting for VAT.

Members can find out more by visiting Build UK’s Are you Ready for Brexit? website.

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