Further delay to VAT Reverse Charge for Construction

On 5th June 2020, HMRC announced a five-month delay to the introduction of the domestic VAT reverse charge for construction services, as a result of Coronavirus.

The change will now apply from 1st March 2021 and will overhaul the way VAT is payable on building and construction invoices, to reduce fraud in the sector.

Under the domestic reverse charge, the customer receiving the service must account for the VAT due on these supplies on their VAT return, instead of paying the VAT to the supplier.

The change was originally scheduled to come into effect from 1 October 2019, but was then deferred for 12 months. Industry bodies had highlighted concerns about lack of preparation and the impact on businesses at that point.

There will also be an amendment to the original legislation.

Businesses are excluded from the reverse charge on relevant supplies where they are end users, or intermediary suppliers. If so they must inform their subcontractors, in writing, that they are end users or intermediary suppliers.

HMRC says the additional amendment is designed to make sure both parties are clear whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and brings certainty for subcontractors.

HMRC says it will continue to focus on identifying and tackling existing fraudsters in the construction supply chain. It will also work closely to raise awareness of the coming changes and provide additional guidance and support to make sure all businesses will be ready for the new implementation date.