Reverse VAT charge put back until March 2021

08/06/2020
Chris Ames

HMRC has announced another delay to the introduction of the domestic reverse VAT charge for construction services due to the impact of the coronavirus pandemic.

The new arrangements, which had already been put back by a year and were due to begin in October, will be delayed for a further five months until 1 March 2021.

The domestic reverse charge means the UK customer, who receives construction services, must account for the VAT due on these supplies on its VAT return, rather than the UK supplier.

HMRC said this removes the scope for fraudsters to steal the VAT due to it.

It added that businesses need to adapt their accounting systems for dealing with VAT and acknowledged that there will be a negative impact on cash flows for many affected businesses, as they will no longer get VAT payments from customers for services where the reverse charge applies.

HMRC said it ‘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’.

In the meantime, ‘HMRC will continue to focus additional resource on identifying and tackling existing perpetrators of the fraud…[and] will also work closely with the sector to raise awareness and provide additional guidance and support to make sure all businesses will be ready for the new implementation date’.

There will also be an amendment to the original legislation to make it a requirement that businesses that are to be excluded from the reverse charge because they are end users or intermediary suppliers must inform their sub-contractors in writing that they are end users or intermediary suppliers.

‘This is designed to make sure both parties are clear whether the supply is excluded from the reverse charge.’

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