Construction: delay of one year in the implementation of the new provisions for Reverse Charge VAT

On Friday (6 September) the Government announced a delay of one year in the implementation of the new provisions for Reverse Charge VAT, until the 1 October 2020 – please see 
https://www.gov.uk/government/publications/revenue-and-customs-brief-10-2019-domestic-reverse-charge-vat-for-construction-services-delay-in-implementation/revenue-and-customs-brief-10-2019-domestic-reverse-charge-vat-for-construction-services-delay-in-implementation, which also provides a link to HMRC’s guidance on this.

The text of the announcement is below – some firms may wish to take action in response to this, for example by opting out of monthly VAT returns. 

1. Purpose of this brief
• This brief explains that the introduction of the domestic reverse charge for construction services will be delayed for a period of 12 months until 1 October 2020.

2. Who should read this brief
• Businesses registered for VAT that are in the construction sector.

3. Background
• A 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. This removes the scope for fraudsters to steal the VAT due to HMRC and follows similar measures introduced in response to criminal threats for mobile telephones, computer chips, emissions allowances, gas and electricity, telecommunication services and renewable energy certificates.
• There has been a long lead-in time ahead of the anti-fraud measure coming into force. The Government first confirmed it would be taking this measure forward at Autumn Budget 2017. A technical consultation on the draft legislation and its impact took place in summer 2018 and the final legislation and guidance were published in November 2018.
• The long lead-in time was to allow for potential cash-flow and administrative impacts the change could have on businesses.
• Businesses 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 get VAT payments from customers for services where the reverse charge applies.

4. Explanation of the change
• Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019.
• To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.

5. The intervening year
• HMRC remains committed to the introduction of the reverse charge and has already increased compliance resource. It has put in place a robust compliance strategy for tackling fraud in the construction sector using tried and tested compliance tools.
• In the intervening year, HMRC will focus additional resource on identifying and tackling existing perpetrators of the fraud. It will also work closely with the sector to raise awareness and provide additional guidance and support to make sure all businesses will be ready for the new implementation date.
• HRMC recognises that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC will take into account the fact that the implementation date has changed.
• Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date which they can reverse by using the appropriate stagger option on the HMRC website.

6. Further information
• HMRC will update the reverse charge guidance to reflect the change in the implementation date. For further information about this announcement contact: [email protected].

Notes to Editors

1. About RIA: The Railway Industry Association (RIA) is the voice of the UK rail supply community. We help to grow a sustainable, high-performing, railway supply industry, and to export UK rail expertise and products. We promote and represent our members’ interests to policy makers, clients and other stakeholders in the UK and overseas. RIA has 250+ companies in membership in a sector that contributes £36 billion in economic growth and £11 billion in tax revenue each year, as well as employing 600,000 people—more than the workforce of Birmingham. It is also a growing industry with the number of rail journeys expected to double over the next 25 years and freight set to grow significantly too. RIA’s membership is active across the whole of railway supply, covering a diverse range of products and services and including both multi-national companies and SMEs (60% by number). RIA works to promote the importance of the rail system to UK plc, to help export UK expertise around the globe and to share best practice and innovation across the industry.