Delayed implementation of Domestic Reverse charge VAT for construction services

9 September 2019

The introduction of the domestic reverse charge for construction services will be delayed 12 months until 1 October 2020. This delay is to give businesses who are not ready more time to prepare.  Businesses which are registered for VAT that are in the construction sector will be affected.

A domestic reverse charge is a major change to the way VAT is collected in the building and construction industry. It will mean that the UK customer who gets supplies of construction services must account for the VAT due on these supplies on their VAT return rather than the UK supplier.

This anti-fraud measure was first confirmed it would be taking effect at the Autumn Budget 2017 and the final legislation and guidance were published in November 2018. This long lead-in time was to allow for potential cash-flow and administrative impacts the change could have on businesses.

For many businesses the new rules will have a negative impact on cash-flow as they will no longer get VAT payments from customers for services where the reverse charge applies. Businesses will need to adapt their accounting systems for dealing with this and VAT.

In the construction industry, HMRC has put in place a robust compliance strategy for tackling fraud. During the intervening year, HMRC will focus on tackling the existing perpetrators of the fraud. Their aims are to raise awareness and provide additional guidance and support to make sure all businesses will be ready for the new implementation date.

HMRC understands that some businesses have already changed their invoices to meet the needs of the reverse charge. With this in mind, where genuine errors have happened, they will take into account the fact the implementation date has changed. For those businesses which have opted for monthly VAT returns ahead of 1 October 2019, this can be reversed by using the appropriate stagger option on the HMRC website.

The HMRC updates in the reverse charge guidance can be found here.

If your business will be or has been affected by this please speak to our VAT expert Michelle Dale at m.dale@uhy-uk.com.