HMRC Postpone Reverse VAT To March 2021
The introduction of the domestic reverse charge for construction services will be delayed for a period of 5 months from 1 October 2020 until 1 March 2021 due to the impact of the coronavirus pandemic on the construction sector.
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.
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.
HMRC remains committed to the introduction of the reverse charge and has put in place a robust compliance strategy for tackling fraud in the construction sector using tried and tested compliance tools.