HMRC has announced that the VAT Domestic Reverse Charge will be delayed until October 2020.
This development follows intense pressure from the construction industry. Associations argued that companies were not ready for the change, which is part of anti-fraud rules aimed at targeting VAT-related fraud in supply chains within construction, and that it would have a significant impact on business finances.
In a briefing note, HMRC 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 October 1, 2019.
“To give businesses more time to prepare, the introduction of the reverse charge has been delayed. This will also avoid the changes coinciding with Brexit.”
The tax body said that it remains committed to the introduction of the reverse charge. It has already increased compliance resources and put in place a strategy for tackling fraud in the construction sector.
In the period up to October 2020, HMRC has pledged to focus additional resources on identifying and tackling existing fraudsters, adding that it will work closely with the sector to raise awareness and provide additional guidance.
The delay was widely welcomed by the construction industry.
Federation of Master Builders (FMB) chief executive Brian Berry called it “a victory for common sense”.
“To plough on with the October 2019 implementation could have been disastrous given that the changes were due to be made just before the UK is expected to leave the EU, quite possibly on no deal terms,” said Mr Berry.
David Frise, chief executive of the Building Engineering Services Association (BESA), said: “If the government had not delayed the changes, many SMEs would have been caught off guard, facing increased burden and restricted cashflows while simultaneously bracing for the serious disruptions caused by the UK’s planned withdrawal from the EU.
“This gives us plenty of time to help businesses plan a smooth transition in the way VAT is charged by October 2020.”
If you are involved in the construction industry and would like advice on the implications of the VAT reverse charge, please contact our tax team via the details below.
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