Update to post of 2nd August – Reverse charge VAT for builders delayed for 12 months

A major change to the way VAT is collected in the building and construction industry has been delayed until 1 October 2020.  

The domestic reverse charge VAT for construction services was due to take effect from 1 October 2019.

It will put the onus on the customer receiving a service to pay the VAT element to HMRC, instead of paying the supplier.

The measure will apply to VAT-registered individuals or firms in the UK, who supply specific services under the construction industry scheme.

The domestic reverse charge aims to combat missing trader fraud in the construction sector.

Campaigners had expressed concerns that up to 150,000 businesses in the sector were not ready for the changes to be implemented next month.

To help those businesses prepare, and avoid the measure clashing with the UK’s scheduled exit from the EU, the reverse change has been put on hold for 12 months.

The Chartered Institute of Taxation (CIOT) welcomed the news, after months of calling for the reverse charge to be delayed.

It warned that implementing the measure next month may cause widespread disruption to the construction sector.

That suspicion was fuelled by a survey from the Federation of Master Builders, which found that 69% of SMEs in the construction sector had not heard of reverse charge VAT.

Linda Skilbeck, vice-chair of the CIOT’s indirect taxes    sub-committee, said:

“A start date of October 2020 is more sensible.

“This should allow time for a dedicated information campaign to be operated by HMRC, with the assistance of industry and professional bodies.”

Prior to the 11th-hour U-turn, HMRC had urged those set to be affected by the change to get their houses in order by checking whether the reverse charge will affect sales, purchases or both, and telling clients or suppliers of the measure.

HMRC also advised those affected to update their accounting systems to handle the change, and consider cashflow impacts.

Get in touch for advice on reverse charge VAT.