Construction VAT domestic reverse charge delayed

HMRC has delayed plans to introduce the domestic reverse charge on VAT in the construction services industry.

VAT Domestic Reverse Charge

The domestic reverse on VAT will essentially take the cash payment out of all B2B transactions for companies in the construction services industry. The purpose of this measure is to reduce VAT fraud and the change is expected to affect around 120,000 business.

Under these new measures, VAT registered businesses which provide construction services to another VAT-registered business will not be required to account for VAT, but must issue an invoice stating that the service is subject to the domestic reverse charge. This removes the opportunity for fraudulent business owners to withhold or steal the VAT owed to HMRC.

Why The Delay?

The change was initially due to be in place on 1st October 2019, but it has now been pushed back a year and will be rolled out from 1st October 2020. The reason given for the change is the lack of of awareness of the new rules and disputes on VAT liabilities. The Federation of Master Builders recently conducted a survey which reported how 69% of construction SMEs had no no knowledge of the new reverse charge.

What next?

If you operate in the construction services industry and are not prepared for the VAT reverse charge, find out more about the changes here: https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services.

Get in touch with us today and we will work with you to plan for the changes and ensure you are compliant with all relevant tax legislation.