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UK Government agrees to delay VAT Domestic Reverse Charge
The introduction of the domestic reverse charge for construction services will be delayed for an additional 12 months until 1 October 2020, the UK Government announced on Friday.
Industry representatives have repeatedly raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction. A recently published study by the FMB showed that 69% of construction SMEs had not even heard of the charge with a further 67%, who had heard of the charge, not prepared.
In order to help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.
For the upcoming 12-month period, HM Revenues & Customs have stated “HMRC will focus additional resource on identifying and tackling existing perpetrators of the fraud. It 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.
“HRMC recognises that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC will take into account the fact that the implementation date has changed.
“Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date which they can reverse by using the appropriate stagger option on the HMRC website.”
For more information on VAT Reverse Charge, you can read our recent explainer here.
Written by Sam McDonald
What does the VAT Reverse Charge mean for the Construction industry?
With the impending change to VAT looming in the very near future, it is vitally important for those in the Construction industry to understand the new legislation surrounding the VAT Reverse charge. In an attempt to reduce fraud in the construction industry, HMRC will bring into effect a reverse charge in October 2019. Specifically targeting missing trader fraud, the change has been made, in part, in response to many fraudsters establishing construction companies, draining off VAT as it moves up the supply chain and ultimately closing the business after 6-9 months and vanishing from HMRC’s radar.
What will change?
Certain customers will become responsible to HMRC for VAT for purchases rather than the supplier. The new legislation will mean that VAT cash no longer passes between businesses. For example, for every new transaction made, the VAT must be registered and listed on the invoice. Suppliers will no longer charge and account for the VAT but rather the customer.
However, to ease with the transition, there will be a 3-month grace period allowing contractors to pay invoices and prior to October 2019 using the current system.
How does this affect you?
HMRC have stated that they expect the change to affect up to 150,000 business in the construction and building sector. Any company registered with the Construction Industry Scheme (CIS) or any company invoicing a customer that is not CIS registered must charge VAT as usual. The change will mainly affect those supplying services to large contractors or recruitment agency.
What should you do?
All businesses in the industry should complete a review of their supply chains and identify areas or suppliers which will be subject to the change and ensure their accounts system is updated in-line with the change.
Sherwood Construction Specialist Advisors
At Sherwood Systems, we are a Sage Construction Specialist Advisor for the industry. We can advise and help your business with this dramatic change. With over 35 years assisting business in the construction industry you can be assured you’re in safe hands. All software is updated in-line with all HMRC Legislation, saving you a substantial amount of time.
For more information and FREE Advice on how Sherwood Systems can help you, please do not hesitate to request a chat with one of our experts today: http://sherwoodsys.com/2040-2/
Written by Sam McDonald