Following the HMRC’s announcement of 5 June, yesterday the order was made by which the introduction of the VAT reverse charge on construction services is being further delayed from 1 October 2020 to 1 March 2021.
With the objective of removing the scope for fraudsters to steal VAT due to HMRC, the impact of the domestic reverse charge is that the responsibility for accounting to HMRC for VAT will shift; the UK customer receiving supplies of construction services (rather than the UK supplier) will need to account for the VAT due on these supplies on their VAT return.
There has been a long lead-in time ahead of the anti-fraud measure coming into force to allow for the potential cash-flow and administrative impacts the change will have on affected businesses; many will experience the immediate negative impact on cash flows when they stop receiving VAT payments from customers for services wherever the reverse charge applies.
Industry concerns over a lack of readiness resulted in a delay in the charge coming into force from 1 October 2019 until 1 October 2020 and today’s publication extends implementation by a further 5 months so that it applies for tax points from 1 March 2021.
Note that the original legislation is also being amended so that businesses wishing to be excluded from the reverse charge (by virtue of being end users or intermediary suppliers) will need to provide their subcontractors with written notification of this. This is a welcome update which will provide clarification for all parties concerning whether a supply is excluded from the reverse charge (thereby reducing opportunities for HMRC to challenge).
For further details, click here for HMRC’s Policy Paper and here to access The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) (Change of Commencement Day and Amendment) (Coronavirus) Order 2020.
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