On 5 June HMRC issued a notice stating that the introduction of the Domestic Reverse Charge VAT for Construction Services, which was due to be introduced on 1 October 2020, will now be delayed for the second time until 1 March 2021.
A domestic reverse charge means the UK customer who receives supplies of construction services must account for the VAT due on these supplies on their VAT return, rather than the UK supplier.
HMRC anticipates that this will eliminate the opportunity for fraudsters to steal the VAT due to HMRC and in a similar manner as measures introduced to reduce VAT fraud on mobile telephones, computer chips, emissions allowances, gas and electricity, telecommunication services and renewable energy certificates.
The scheme was initially due to be introduced in October 2019 but it was deferred initially until October 2020 after industry concerns businesses had not been given suitable time to make the required changes.
To help construction businesses overcome the effects that the coronavirus pandemic has had on them and give them more time to prepare, the introduction of the reverse charge has been delayed for a further 5 months until 1 March 2021.
Businesses providing Construction Services may need to adapt their accounting systems for dealing with VAT and there will be a negative impact on the cash-flows for many affected businesses, as they will no longer receive VAT payments from customers for services where the reverse charge applies.
If you would like some assistance to prepare your business for these changes or would like some more information on the VAT Reverse Charge for Construction Services please contact Ben Davies in our tax department.