Domestic Reverse Charge Delayed
The Domestic Reverse Charge VAT for construction services was due to launch on the 1st October. These changes were due to affect everyone in the supply chain, including contractors and sub-contractors. VAT was due to be paid to HMRC directly by the end customer, rather than collected and paid over by the Supplier.
The new rules have been delayed for 12 months, and will now become operational from 1st October 2020.
The delay was put down to industry representatives having raised concerns that interest construction industry wasn’t ready for the changes. The extra time is to allow the industry to complete its preparations, and to avoid a significant change in regulation coinciding with our exit from the EU.
The Federation of Master Builders had called for the delay following research into awareness of the new rules. A survey of the Federation’s 8,000 members found that 69% had not heard of the new rules. Of those who had, 67% had not prepared for them. The Federation was also critical of the advice given by HMRC, labelling it as ‘unclear and ‘contradictory’. A website and marketing campaign had been promised to publicise the changes, but these had not materialised. HMRC released its guidance document just four months prior to the date the new rules were due to come in.
The biggest concerns for the FMB came from the potential cash flow impact of the new regulations, with warnings around insolvencies and ‘construction chaos’ in the industry.
HMRC remains committed to the Domestic Reverse Charge, but said that it will spend the next 12 months raising awareness and providing guidance to make the implementation less onerous in 2020. It also said the tit would focus additional resource on identifying and reducing VAT related fraud in the industry. This was the main motivator for the new regulations.
Some businesses have already implemented the change, and HMRC recognised the difficulties that these will have in reversing the changes.
If you’re unsure of how the Domestic Reverse Charge will affect your business when it comes in, please get in touch with us.
See the full announcement and briefing here: https://www.gov.uk/government/publications/revenue-and-customs-brief-10-2019-domestic-reverse-charge-vat-for-construction-services-delay-in-implementation/revenue-and-customs-brief-10-2019-domestic-reverse-charge-vat-for-construction-services-delay-in-implementation