Government announces one-year delay to reverse charge for VAT in construction

The domestic reverse charge for VAT in the construction sector has been delayed by a year, until October 2020, according to a Government announcement released last Friday 6th September. 

HMRC has said the implementation of the reverse charge would be delayed because of concerns among key industry players, who suggested the sector was simply not prepared enough. 

There had been a recent surge of leading construction bodies calling to put a hold on the Domestic Reverse Charge for VAT, including the Specialist Engineering Contractors’ (SEC) Group and the National Federation of Builders (NFB) due to the risk it poses to construction businesses in terms of cash flow and administrative costs.   

The delay, according to HMRC, is to ensure any changes do not coincide with Brexit, as well as to give construction employers more time to minimise the potential negative impacts that it could have. 

Brian Berry, Chief Executive of the FMB, said: “I’m pleased that the Government has made this sensible and pragmatic decision to delay reverse charge VAT until a time when it will have less of a negative impact on the tens of thousands of construction companies across the UK. 

“To plough on with the October 2019 implementation could have been disastrous given that the changes were due to be made just before the UK is expected to leave the EU, quite possibly on ‘no-deal’ terms.

Berry argues that the situation surrounding Domestic Reverse Charge was made worse as a result of poor communication and guidance surrounding the implementation of the new anti-fraud measures. He suggests that a worryingly small amount of construction employers were not even aware of the domestic reverse charge, something that was highlighted by the Federation of Master Builders back in July, 2019. They found  in their survey that more than two-thirds (69%) of construction SMEs had never even heard of reverse charge VAT. 

Berry concluded: “It is reassuring that the Government has listened to the construction industry, which has come together to make clear to the Government that sticking to the October 2019 timetable could lead to a loss of productivity, reduced cashflow and in the worst cases, lead to a hit on jobs, tipping some companies over the edge. 

“What’s required now is for the Government and industry to work together to deliver a sector-wide communications campaign, which must include plain English guidance on the changes. We also want to work with the Government to deliver workshops aimed at construction employers, held in locations across the country, to explain what’s happening and why.”

The National Federation of Builders also gave a statement on the matter. Richard Beresford, Chief Executive said, “Contractors and subcontractors weren’t ready for reverse charge VAT and we are delighted that the government has listened to our industry campaign to seek a delay.”

If you have any concerns surrounding the Domestic Reverse Charge for VAT and how it could impact you, please get in touch and we can help you make sure that you’re suitably prepared.

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