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One year delay announced for reverse charge VAT introduction

Planned introduction of Reverse charge VAT next month will be shifted to Autumn 2020 to give construction specialists more time to prepare for the changes and avoid additional Brexit disruption

The government has announced it will be delaying the introduction of a new process for receiving VAT payments by twelve months following concerns from the construction sector about introducing the changes.

Reverse charge VAT for construction services, described by government as a major reform of how the tax is collected, will now come into effect on October 1, 2020. This delay is intended to avoid additional disruption to companies across the construction sector as a result of the UK still being scheduled to leave the EU on 31 October.

The reforms will apply to individuals or companies registered for VAT in the UK and means an organisation receiving a service must pay the required tax to HMRC, rather than providing the money owed to the supplier.

An official statement on the reforms said, “Domestic reverse charge means the UK customer who get supplies of construction services must account for the VAT due on these supplies on their VAT return rather than the UK supplier.

Government has argued that the reforms are an important step to try and tackle fraud around the VAT owed to HMRC.

However, a decision has now been taken in Whitehall to delay the amendments due to concerns raised by trade bodies across the construction and building services sector about a lack of industry readiness for the reverse charge system to be introduced on 1 October, 2019.

HMRC said it will use the additional year before introducing the reform to better identify where fraud may be occurring in the current system, while working with organisations in the construction sector to give guidance on being ready for the changes.

Industry readiness

A host of trade organisations in the building services sector have welcomed the delay.

BESA, which has been among of organisations campaigning for a delay on introducing the reforms this year, said the delay would provide time to better prepare members for such major change.

David Frise, chief executive of the organisation, said plans to introduce the reverse charge system next month risked increasing the burden on a HVAC sector that was also bracing for serious disruption as a result of uncertainty about Brexit.

He said, “While these changes have been delayed, it is important to remember they will still come into effect next year. So businesses must use this extra time to make sure they are fully prepared.”

‘BESA members will continue to receive regular guidance through monthly tax bulletins as well as template letters and invoices we have prepared to inform their supply chains.”

BESA added that it would be hosting a free webinar for members on 19 September to provide further advice on the new tax process.

Rob Driscoll, director of legal and business affairs for the ECA, said industry campaigning to delay reverse charge VAT had been vital to prevent a rushed and disruptive introduction of the changes.

He said, “This is very much a victory for industry, due to the efforts from ECA, FMB and others. Many businesses across the construction industry were evidently not ready for the initial deadline of 1, October 2019. Given the backlog of businesses requesting conversion from quarterly to monthly VAT returns, it seems neither were HMRC.”

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