08 June 2020
On 5 June 2020, HMRC announced that the implementation date for the domestic reverse charge (DRC) for building and construction services will be delayed until 1 March 2021. This is to ease the administrative burden on businesses as they recover from the disruption caused by the Coronavirus pandemic.
The DRC only applies to individuals and businesses registered for VAT in the UK in the supply chain. It does not apply to the final customer. This charge applies to businesses which supply or receive specified services that are reported under the Construction Industry Scheme (CIS).
The DRC for building and construction services was intended to start in 2019 and was pushed back to 2020, and now 2021. It is controversial as it creates a further administrative burden on construction companies, although it should be neutral in respect of the tax cost to the business.
The measure is intended to reduce fraud in the building and construction sector. It is intended to stop fraudulent sub-contractors charging VAT to their customers and not accounting for that VAT to HMRC. This results in an absolute cost to the Treasury as the customer recovers the VAT charged and so the country effectively pays out money rather than receiving it - reducing tax already taken. HMRC will apply targeted fraud prevention measures in the interim period.
The DRC results in the customer charging themselves VAT on their suppliers’ services and recovering it on their VAT return. The obligation to charge VAT cannot be removed under EU law and this measure preserves HMRC’s ability to ensure that the VAT recovery made is appropriate. The DRC is a proven and very effective anti-fraud measure which is already applied in other specified sectors.
It is important that businesses who are affected by the order review their process to ensure they are not charged VAT when it should be accounted for through the DRC. If businesses are incorrectly charged VAT it is unlikely HMRC will allow them to recover it.
For further information visit https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services#overview, or contact your usual UHY adviser for advice on your specific situation. If you are not already a client, you can find a UHY specialist in your nearest office and get in touch through our Contact Us form.
