HMRC has announced that the introduction of the domestic reverse charge for construction services will be delayed for a period of 12 months until 1 October 2020.
Businesses registered for VAT that are in the construction sector should be aware of the announcement of a 12 month delay to the implementation of this domestic reverse charge for construction services.
What is a domestic reverse charge?
A domestic reverse charge is when a UK customer receives supplies of construction services, they account for any VAT due on the supplies on their own VAT return, instead of the UK supplier. This takes away the ability for any VAT being stolen through fraud.
There has been a long lead-in time ahead of this change. The government first confirmed it would be taking these anti-fraud measures in the 2017 budget, the draft legislation was drawn up in summer 2018 and the final legislation was published in the following November. This time was allowing for businesses to prepare and deal with any potential cash-flow or administrative impacts.
Why the delay?
Representatives of the industry have expressed concerns that some businesses in the construction sector are not prepared for the implementation of the reverse charge legislation on 1 October 2019. Therefore the reverse charge introduction is being delayed for a period of 12 months until 1 October 2020, giving businesses more time to prepare and avoiding any clash with Brexit.
What happens next?
HMRC will use the next 12 months further increasing compliance resources, and identifying existing fraudsters, but also working alongside businesses within the sector aiding them in the preparation for the 1 October 2020.
HMRC will be updating the reverse charge guidance to reflect this update.
For any queries regarding VAT and your construction business, please don’t hesitate to get in contact.